How to do proper KPI setting?

Ionut

There's no "ideal" number of KPI's and you need to distinguish between KPIs for the organisation as a whole and KPIs for an individual/team.

It's a two step process:

First, decide "what" to measure - which aspects of performance to measure.

This is about understanding which aspects of performance really matter to the organisation - and the fewer the better. All too often this ends up as a semirandom long list which isn't helpful.

An organising framework can help you focus on the "what" question. There are several around but based on experience I tend to favour the Balanced Scorecard approach (when used properly) and using something called a strategy map to identify the few critical success factors for the organisation which then become the "what" do we need to measure answers

The second step is to take each success factor in turn and decide "how" to measure. This is often more difficult than it looks and I use something  called a data dictionary template to help people focus.

As an example assume a retail organisation has identified one critical success factor as "increasing repeat sales"

So how will/should we actually measure this? Again there's no ideal answer but options:

• the % of total sales that comes from repeat sales or  
• the % of customers who buy again or ... etc etc

You then need to be clear exactly how the KPI will be defined and measured and what a sensible target would be - which is where the data dictionary template comes in. The template also requires clarification as to who's responsible for achieving this KPI which is an important aspect of performance measurement.

Hope that helps.

Dear Concern,

We set KPI based on Business objectives. Steps can be narrated as follows:

1. Once we select objectives, it is prioritized based on Mission critical or critical success factor or strategy [removed]

Example: 

Objective: Reduce child mortality rate by 10% within 2018 under the supervision of Health Minister.

Input Metric: Budget, Doctor, Nurse, Vaccine etc.

Process KPI: $ Cost of the vaccine, % Vaccine utilization rate, $ Cost of resources etc.

Output KPI: # Children vaccinated, % Population under vaccination program etc.

Outcome KPI: % Mortality rate

2. When we get the outcome KPI, we balance the KPI through balancing methodology. For every KPI, there should be a balancing KPI to counteract. 

Example: 1. % Mortality rate

              2. $ Cost of resources

Example: 1. $ Sales

               2. Cost of sales

The above example has been balanced based on Effective vs Efficient KPI.

3. We can select one KPI for each objective two KPIs for balancing and three KPIs at best.

4. Those Objectives should have cause and effect relations which can be drawn in the Strategy Map.

5. Now if you select 6/7 objectives at the organizational level, you will have to monitor/track 12/14 KPIs.

6. Once this organizational KPIs are cascaded to the department, following rule follows:

Business unit objectives cab be cascaded at departmental level as they are with same or different KPIs:

• Same objective- same KPIs down the line
• Same objective- same KPIs + specific KPI down the line
• Same objective- specific KPIs down the line

The same objective can be cascaded to more departments, each of them measuring it through different KPIs.

Some organizational objectives may not be cascaded to lower levels.

Organizational objectives are supported by specific objectives established at the departmental level, selected based on a contribution analysis.

Individual Level:

Individual-level will receive cascaded objective and some of the objectives shall be developed from Job Description. 

Example:

One Objective and two KPIs are cascaded from top and individual will develop/populate/devise 2/3 objectives that support the top. Altogether there will be 6-8 KPIs for an individual. 

For more details please feel free to contact:

Kind regards,

Md. Mostafa Kamal,

C-PA, C-KPIP, C-KPI Practitioner, CRP & CTAP

Chief Executive Officer

Savvy Consultancy and Training