31.01.2018 at 19:48 h / Edited 06.07.2018 at 17:09 h
Bozhana LEAN Thinker, International Project Manager, Business Dev...
I would like to introduce new KPIs and re-engineer the existing ones that are not understandable by the majority of my team.
Please share your experience in setting KPIs in your company.
Bogdan Efficiency Project Manager (Lean expert, Agile, RP
I previously wrote an article about SSMAAART KPIs. I hope it helps.
This post in an extension of a broader topic that I covered in “Achieving your dreams” article. I tried to cover there the relationship between goals, key performance indicators and targets and explained that all together they should be not just smart S.M.A.R.T. but actually S.S.M.A.A.A.R.T.
So 2 times S and 3 times A.
I will not spend time going through the typical definitions that come with S.M.A.R.T. principle, but rather focus on the additional aspects that are many times ignored in most of the articles that you can find online.
So, the typical SMART structure you will find is:
Specific, Measurable, Achievable, Relevant, Time based.
Specific but Simple
You can be very specific when setting a goal but the complexity of the description can be so high that in the end nobody will understand what needs to be done.
E.g.: “Decreasing body fat by 4.7% per quarter out of total body mass” is an example of a specific performance indicator that maybe it’s not that easy to understand, it’s not simple.
“Lose 3 kg every 3 months” says exactly the same thing and regardless if it’s you or somebody else, it’s easy to understand and therefore the chances to achieve it are higher.
Tip: once you know what you desire translate it in to a simple to understand definition.
Being able to measure your progress will let you know if you are going the right way and will build your confidence. Obviously some things are harder to measure than others, but even if we are talking about visual assessment (muscle mass increase) or concrete data (body weight loss) it’s important to permanently keep track of your evolution.
Achievable but Ambitious
Any target/goal should be set up in such a way so that you are confident that it can be achieved but at the same time it must take you out of the comfort zone. This can sound quite conceptual but I will try to make it more concrete: if you can achieve a goal without changing anything in the way you do things than it means it’s not ambitious at all.
E.g. If it takes you 15 min to get to the park by walking and you set for yourself an objective to get to the park today in 14-15 minutes - you will not get out of your comfort zone.
If you set an objective to get there in 7 minutes - maybe you’ll need to run but for sure you’ll make it in time if you are ambitious enough.
Your performance indicators must suggest the action that needs to be done in order to achieve them (e.g.):
- Lose weight
- Increase muscles mass
- Run faster or longer
- Sell x number of pieces etc
At the opposite side you can have the so called static performance indicators, that don’t point to any action and can create confusion when trying to understand them (e.g.): customers per employee. If you are a store manager than maybe for you it’s obvious that your employees should try to interact with as many customers as possible in order to sell more but I wonder if a junior employee would get this from reading the indicator.
When you say a performance indicator must be relevant it means two things:
A) It makes sense to have it because it goes in line with my role or ambitions
If you are in a business environment than you would try to give a sales guy sales related goals and let somebody else worry about risk. Nobody stops you from giving them both, but you will just create powerful contradictions in the employee’s behavior. It’s like asking somebody to obtain the maximum possible speed without driving fast.
B) It depends on my actions if I will achieve it or not
Having a goal that doesn’t depends on you it will just make you indifferent or frustrated. It’s wonderful to desire world peace but if you are in a contest for Miss World I have a feeling you can’t do that much in order to make it real.
TIP: before assuming any goal, KPI or targets ask your-self:
- Does it make sense to have it? Is it my job to do it? How is this goal going to influence my behavior and does it goes in contradiction with any other goal that I have now?
- Does it depend on me? if I will put all the necessary effort will it become real?
All goals should have a deadline. Getting there is not enough without knowing when this should happen.
Time is the unit that will tell if any action can be considered a great, or an average, performance. Running 100 m says nothing about the individual that done it … even a child can run 100 m. But running 100 m in under 10 seconds lets you know that we are talking about an athlete.
Also time is the unit that takes us out of the comfort zone. If I would be asked to sell 100 cars I would not be that intimidated … If I start now I will most likely do it by the time I am 80 years old even if I am not selling cars as a profession. But if you ask me to do it in one year, then everything is changing … I would have to sell a car every 3,6 days … Maybe even a professional car seller would become stressed about such objective.
So don’t be just SMART … BE SSMAAART!
Georgi Country Manager Bulgaria at Documaster
You already have info about SMART & OKRs. I have experience with OGSM (Objectives, Goals, Strategies, Measures) and I would argue it is definitely more strategic (overall objectives trickling down to a set of simple, SMART actions and measures) than the former and more cohesive than the latter. If you are interested, I will elaborate on this framework, yet if you have solved your issue, there might be no need for that :)
Marieta Lean Consultant Legal Sector
Personally, I tried explaining KPIs split into two other elements because in a lot of teams I saw that KPIs is just a terminology, KPIs are totally irrelevant and do not mean anything to the teams.
The 2 elements that I saw working are:
1. Objectives - where do we want to go as a team/company etc
2. Key results- how we will know we are getting there
Objectives and Key results track individual, team and company goals in an open and transparent way. (read and applied according to Salim Ismail, Michael S. Malone, Yuri van Geest, Peter H. Diamandis)
Definitely recommending you to try to present it in this way and the message will be well accepted.
Happy to assist you more,
Milena RPA, Machine Learning, Automation
you can find my thoughts in the challenge I have written. Please find the link here:
During a recent mentoring session with one of my Chartered Management Institute mentees we discussed how focus can be given on objectives in an organisation. I have seen lots of methods of doing this kind of analysis over the years, but one of the simplest and most successful is the OOEA analysis tool I learned when at Joint Command and Staff College. I looked online and could not see who invented this tool, but have found it hugely successful in the last twelve months of the pandemic, giving focus both to our Strategic Command Group, and later to give clear focus to the Vaccination Recruitment Programme at St John Ambulance.
I produced an article to outline my view on how OOEA is best utilised, and some examples of how I have used this process successfully. This is in the hope that you may be able to take this work and use it in your teams to give more focus on objectives.
You can find this on my LinkedIn Page
Chuck LEAN Business Consultant
A company’s key performance measures will vary depending on the industry and the organization’s objectives. For example, a technology company might measure growth by comparing each year’s earnings, while a retailer might look at same-store sales.
Some KPIs will be more quantitative than others. For example, earnings are generally much easier to measure with hard numbers while user satisfaction with a product, service, or site is open to interpretation. Performance indicators can be based on finances, customer service, marketing, sales, manufacturing, human resources, supply chain, and more. Below are some possible KPIs for different industries.
Examples of sales and finance-based KPIs might include:
Earnings before interest, taxes, depreciation and amortization (EBITDA)
Net profit (how much revenue the company retains after paying taxes, expenses, etc.)
Gross profit (how much revenue the company retains after deducting the production cost of goods sold)
Costs (to figure out ways to lower them)
A comparison of projected vs. actual revenue
A comparison of expenses vs. budget
Debt vs. equity ratio
Day sales outstanding (DSO) (the average number of days it takes to receive payment after a sale)
Regional or national sales
Sales from new customers
Repeat sales revenue
Proposals issued and/or lost
Examples of marketing key performance indicators might include:
Dollars spent on marketing over a certain period
Online traffic (the number of visitors to the company website)
Organic online traffic (the number of visitors to the company website via search engine)
Web traffic (to determine how many visitors are new vs. returning)
Click-through rate (the ratio of web traffic that clicks on a particular ad)
The number of visits to a particular piece of content
SEO rank (where your web content appears in search engine results for certain keywords)
Social media traffic growth
Examples of customer service-based key performance indicators might include:
Customers gained over a set period
In-store foot traffic
Percentage of customers who don’t continue paying for service or buying products
Cost of customer acquisition
Customer lifetime value (to determine how to best gain and retain customers)
Examples of key performance indicators employees might use to track their own development include:
Personal targets such as sales quotas
Project completion within a certain time frame
Units processed or issues resolved a day, week, month, etc.
Speed of work
Follow these steps to choose and implement key performance indicators:
Determine your end goal. Create a clear vision of what you are trying to accomplish. Keep this objective simple and straightforward.
Create your KPQs. Once you can identify a question (For example, “What processes are costing the company the most money?”), it will be easier to determine which indicator or data set will provide the information you need. See more on KPQs below.
Identify what data you already have. Before coming up with metrics to address your KPQs, see if another department or manager is already collecting that information. If so, you can simply adjust the equation and apply it to your business strategy. Collecting existing data can also ensure you’re setting a realistic target for your KPI.
Collect supporting data. Take time to collect statistics on industry trends, demographics and competitors. Use this information to inform your key performance indicators. However, avoid simply measuring the exact same KPIs as your competitors. Every business is unique and what works for one company might not work for another. Dedicate time to clearly pinpoint what metrics will benefit your company.
Determine how frequently you’ll measure each KPI. You’ll need to gather information at the intervals appropriate for your needs. Monitor KPI status to make sure it’s still useful and tracking the information you intended it to.
Set short- and long-term goals for the performance indicator. If your long-term goal is to sell 2,400 memberships to your service over the course of a year, you’ll want to divide it into short-term goals you can assess. In this scenario, you might try reaching at least 200 new memberships per month. Then, you can use this rate to determine whether you need to change expectations or strategies as you go.
Delegate responsibility for KPIs. Make sure an employee or a manager is in charge of assessing each key performance indicator and of collecting, interpreting and presenting that data.
Share KPIs with the company and stakeholders. Be transparent when discussing performance. Contribute to your organization’s success by communicating strategies, progress and outcomes. It’s essential all team members are aware the objectives so they can work towards them and provide feedback as necessary.
As you can see, key performance indicators aren’t static, and it’s crucial you update them as your organization’s needs evolve.
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