After another question about “calculating the scorecard index” I understood that some of our clients don’t have a clear understanding of the math that stands behind a KPI, its performance, and the scorecard. I decided to create a “101”-level presentation that explains the basics of KPI from the mathematical point of view: It is based on the article: http://www.bscdesigner.com/scorecard-and-kpis-101.htm Reviewed topics are: - Calculating the performance using “min” and “max” of an indicator; - Using linear and non-linear functions for the performance; - Calculating the progress from the baseline towards target; - Introduction of the indicator “weight” to reflect a relevant importance of an indicator; - Calculating the total performance index of the scorecard. Please, share your thoughts about the scorecards as a tool: -- For what task do you use them? -- Do you define the relevant importance of indicators on the scorecard? -- Do you calculate and use the total performance index?

1. SCORECARD AND KPIS 101
Based on
www.bscdesigner.com/scorecard-and-kpis-101.htm
By Aleksey Savkin, bscdesigner.com
BSC DESIGNER

2. NOT ALL INDICATORS ARE KPIS
• It doesn’t make sense to call something “KPI”
until a business context is defined.
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3. NOT ALL INDICATORS ARE KPIS
• It doesn’t make sense to call something “KPI”
until a business context is defined.
• But I’ll be using the “KPI” term as it is more
popularized.
BSC DESIGNER

4. NOT ALL INDICATORS ARE KPIS
• It doesn’t make sense to call something “KPI”
until a business context is defined.
• But I’ll be using the “KPI” term as it is more
popularized.
• These aspects were discussed before… in the
guide “from quantification to a metric”
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6. WHAT PROBLEMS ARE KPIS AND A
SCORECARD SUPPOSED TO SOLVE?
• Indicators are numerical values that are linked
to some kind of process.
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7. WHAT PROBLEMS ARE KPIS AND A
SCORECARD SUPPOSED TO SOLVE?
• Indicators are numerical values that are linked
to some kind of process.
• Their primary goal is to show a number that
can give us an idea about the current
performance.
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8. WHAT PROBLEMS ARE KPIS AND A
SCORECARD SUPPOSED TO SOLVE?
ON INDICATOR LEVEL:
• Show the current value.
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9. WHAT PROBLEMS ARE KPIS AND A
SCORECARD SUPPOSED TO SOLVE?
ON INDICATOR LEVEL:
• Show the current value.
• Introduce the performance function
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10. WHAT PROBLEMS ARE KPIS AND A
SCORECARD SUPPOSED TO SOLVE?
ON INDICATOR LEVEL:
• Show the current value.
• Introduce the performance function
• Interpret the value of an indicator on a
baseline/target scale.
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11. WHAT PROBLEMS ARE KPIS AND A
SCORECARD SUPPOSED TO SOLVE?
ON SCORECARD LEVEL:
• Group indicators into categories.
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12. WHAT PROBLEMS ARE KPIS AND A
SCORECARD SUPPOSED TO SOLVE?
ON SCORECARD LEVEL:
• Group indicators into categories.
• Specify the relevant importance.
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13. WHAT PROBLEMS ARE KPIS AND A
SCORECARD SUPPOSED TO SOLVE?
ON SCORECARD LEVEL:
• Group indicators into categories.
• Specify the relevant importance.
• Calculate the performance of category.
BSC DESIGNER

14. WHAT PROBLEMS ARE KPIS AND A
SCORECARD SUPPOSED TO SOLVE?
ON SCORECARD LEVEL:
• Group indicators into categories.
• Specify the relevant importance.
• Calculate the performance of category.
• Calculate the total performance.
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15. INDICATOR LEVEL

16. THE VALUE OF AN INDICATOR
530 $
20 hours/week
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17. THE VALUE OF AN INDICATOR
530 $
20 hours/week
Numeric value
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18. THE VALUE OF AN INDICATOR
530 $
20 hours/week
Numeric value Measure unit
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19. THE ROLE OF THE PERFORMANCE
FUNCTION
• What the value “530$” means?
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20. THE ROLE OF THE PERFORMANCE
FUNCTION
• What the value “530$” means?
• Is it a high or low?
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21. THE ROLE OF THE PERFORMANCE
FUNCTION
• We need a measurement scale !
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22. We need a measurement scale !
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23. We need a measurement scale !
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24. VALUE
TIME
We need a measurement scale !
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25. VALUE
TIME
Max
Max – means the maximal possible value
of an indicator
We need a measurement scale !
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26. VALUE
TIME
Max
Max – means the maximal possible value
of an indicator
Min
Min – means the minimal possible value
of an indicator
We need a measurement scale !
BSC DESIGNER

27. VALUE
TIME
Max
Min
We need a measurement scale !
BSC DESIGNER

28. THE PERFORMANCE OF AN INDICATOR
CAN BE CALCULATED AS
Performance (Value), % = x 100%
(Value – Min)
(Max – Min)
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29. In our example:
Value = 530
Min = 0
Max = 600
THE PERFORMANCE OF AN INDICATOR
CAN BE CALCULATED AS
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30. THE PERFORMANCE OF AN INDICATOR
CAN BE CALCULATED AS
Performance (Value), % = x 100%
= 88%
(530– 0)
(600 – 0)
BSC DESIGNER

31. The performance function of KPI
Source: www.bscdesigner.com
Performance (Value), % = ((Value – Min) /
(Max – Min)) * 100%
With a linear growth of the “value” the
performance will also grow linearly

32. THE PERFORMANCE FUNCTION IS NOT
ALWAYS LINEAR
!
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33. THE PERFORMANCE FUNCTION IS NOT
ALWAYS LINEAR
• For example, the performance might grow very
slowly in the beginning, but then increase rapidly
BSC DESIGNER

34. The performance function of KPI
Source: www.bscdesigner.com
Performance (Value), % =
Power(Value,10) / Power(Max, 10)
The performance might grow very slowly in the
beginning, but then increase rapidly.

35. Performance (Value), % = x 100%
Power (Value,10)
Power (Max, 10)
THE PERFORMANCE FUNCTION IS
NOT ALWAYS LINEAR
BSC DESIGNER

36. WITH THE INCREASE OF THE VALUE
THE PERFORMANCE MIGHT BE
DECREASING
!
BSC DESIGNER

37. WITH THE INCREASE OF THE VALUE
THE PERFORMANCE MIGHT BE
DECREASING
• For example, the more waiting time there is in the
support center, the lower is its performance.
BSC DESIGNER

38. The performance function of KPI
Source: www.bscdesigner.com
Performance (Value), % = ((Max – Value) /
(Max – Min)) * 100%
With the increase of the value the performance might
be decreasing as well.

39. Performance (Value), % = x 100%
(Max – Value)
(Max – Min)
WITH THE INCREASE OF THE VALUE
THE PERFORMANCE MIGHT BE
DECREASING
BSC DESIGNER

40. CALCULATING THE PROGRESS
• Sometimes it is necessary to focus attention
on a very specific part of the performance
interval.
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41. VALUE
TIME
Max
Min
CALCULATING THE PROGRESS
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42. VALUE
TIME
Max
Min
CALCULATING THE PROGRESS
Planning horizonHistorical values
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43. VALUE
TIME
Max
Min
CALCULATING THE PROGRESS
Planning horizonHistorical values
Baseline
Target
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44. VALUE
TIME
Max
Min
CALCULATING THE PROGRESS
Planning horizonHistorical values
Baseline
Target
“Min” and “Max” are used to
calculate the performance of
the KPI.
BSC DESIGNER

45. VALUE
TIME
Max
Min
CALCULATING THE PROGRESS
Planning horizonHistorical values
Baseline
Target
“Min” and “Max” are used to
calculate the performance of
the KPI.
The performance answers
the question: “What is the
overall performance of the
KPI?”
BSC DESIGNER

46. VALUE
TIME
Max
Min
CALCULATING THE PROGRESS
Planning horizonHistorical values
Baseline
Target
“Baseline” and “Target” are
used to calculate the
progress.
BSC DESIGNER

47. VALUE
TIME
Max
Min
CALCULATING THE PROGRESS
Planning horizonHistorical values
Baseline
Target
“Baseline” and “Target” are
used to calculate the
progress.
The progress answers the
question: “To what extent
was the target achieved?”
BSC DESIGNER

48. THIS MIGHT SOUND A LITTLE BIT
COMPLICATED TO DO…
• This might sound a little bit complicated to do
if you use MS Excel or similar software
• A professional scorecard software, like BSC
Designer will automate these tasks for you.
BSC DESIGNER

49. SCORECARD LEVEL

50. THE RELEVANT IMPORTANCE OF KPIS
A support center has two KPIs:
– “Average email response time,” hours
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51. THE RELEVANT IMPORTANCE OF KPIS
A support center has two KPIs:
– “Average email response time,” hours
– “First contact resolution rate,” %
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52. THE RELEVANT IMPORTANCE OF KPIS
A support center has two KPIs:
– “Average email response time,” hours
– “First contact resolution rate,” %
What KPI is more important?
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53. THE RELEVANT IMPORTANCE OF KPIS
• A company can make ”Average email response
time” equal to 10 minutes,
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54. THE RELEVANT IMPORTANCE OF KPIS
• A company can make ”Average email response
time” equal to 10 minutes,
• But this will not make customers happy, as the
“First contact resolution rate” will be very low.
BSC DESIGNER

55. THE RELEVANT IMPORTANCE OF KPIS
• A company can make ”Average email response
time” equal to 10 minutes,
• But this will not make customers happy, as the
“First contact resolution rate” will be very low.
• Good response time is important, but what is
more important is the high quality of the
answers.

56. THE RELEVANT IMPORTANCE OF KPIS
• To reflect this idea we need a concept
of “weight” :
– “Average email response time,” hours
– “First contact resolution rate,” %
BSC DESIGNER

57. THE RELEVANT IMPORTANCE OF KPIS
• To reflect this idea we need a concept
of “weight” :
– “Average email response time,” hours; weight = 4
– “First contact resolution rate,” %; weight = 6
BSC DESIGNER

58. THE RELEVANT IMPORTANCE OF KPIS
• To reflect this idea we need a concept
of “weight” :
– “Average email response time,” hours; weight = 4
– “First contact resolution rate,” %; weight = 6
Now we know that “First contact resolution rate” is
more important than “Average email response
time.”
BSC DESIGNER

59. CALCULATING THE TOTAL
PERFORMANCE
• The performance of a category can be
calculated by taking in account the
performance values of each indicator and
their weights.
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60. CALCULATING THE TOTAL
PERFORMANCE
• Here we have the structure of the scorecard
C1..4 – are categories. Metric-i,j are indicators
together with their weight and performance
values:
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61. CALCULATING THE TOTAL
PERFORMANCE
• Let’s convert this into a different notation:
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62. CALCULATING THE TOTAL
PERFORMANCE
• We had our weight on a scale 1..10, so before
moving ahead we need to calculate a
normalized weight:
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63. CALCULATING THE TOTAL
PERFORMANCE
• The total performance value for the selected
category is be calculated as:
Where:
– Ni is the number of metrics on i-level;
– NWi,j – is a normalized weight of j-metric on i-level;
– NSi,j – is a performance of j-metric on i-level.
BSC DESIGNER

64. CALCULATING THE TOTAL
PERFORMANCE
• The final formula for the total performance
index of the scorecard will be:
Where M is a number of categories.
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65. CALCULATING THE TOTAL
PERFORMANCE
• These calculations are simple if you don’t have
subcategories in your scorecard.
BSC DESIGNER

66. CALCULATING THE TOTAL
PERFORMANCE
• These calculations are simple if you don’t have
subcategories in your scorecard.
• If you had subcategories, the weight of these
subcategories should be taken into account in
a similar way.
BSC DESIGNER

67. CALCULATING THE TOTAL
PERFORMANCE
• These calculations are simple if you don’t have
subcategories in your scorecard.
• If you had subcategories, the weight of these
subcategories should be taken into account in
a similar way.
• Professional scorecard software like BSC
Designer will automate these calculations so
that you can focus on the business side.
BSC DESIGNER

68. CALCULATING THE TOTAL
PERFORMANCE
• Professional scorecard software like BSC
Designer will automate these calculations so
that you can focus on the business side.

69. MORE ABOUT THE BALANCED SCORECARD
Find more insightful
articles about the
Balanced Scorecard
in ”Articles” section at
www.bscdesigner.com
BSC DESIGNER

70. THANK YOU!
Feel free to send us your questions using the contact form at
www.bscdesigner.com