4 Purposes of (KPI’s) Performance Measurement Systems Providing direction and support for continuous improvementIdentifying trends and progressFacilitating understanding of cause-and-effect relationshipsAllowing performance comparison to benchmarksProviding a perspective of the past, present, and future
5 Key TaskIn designing a performance measurement system, organizations must consider how the measures will support:Senior executive performance reviewOrganizational planningAddress the overall health of the organization, andHow the measures will support daily operations and decision making.
6 Key Issues Organizations need comparative data, such as: Industry averagesBest competitor performanceAs well as world-class benchmarks to gain an accurate assessment of performance and know where they stand relative to competitors and best practices.
8 KPI’s & Shareholder Value Shareholders invest to make money.Management invest that money to achieve the objectives of the shareholders.KPI’s should focus on achieving the objectives of the shareholders but not ignore the other stakeholders.
10 KPI’s Practical Guidelines Fewer is better.Link to the key business drivers.Include a mix of past, present, and futureAddress the needs of all stakeholders.Start at the top and flow down to all levels of employeesCombine multiple indexes into a single indexChange as the environment and strategy changesHave research-based targets or goals
12 Linkages to Strategy KPI’s Measures and indicators Key business drivers (key success factors)Strategies and action plansKPI’s Measures and indicators
13 KPI’s - Measurements Does the measurement support our mission? Will the measurement be used to manage change?Is it important to our customers?Is it effective in measuring performance?Is it effective in forecasting results?Is it easy to understand and simple?
14 Key objectiveThe things an organization needs to do well to accomplish its vision are often called:key business drivers orkey success factors.They represent things that separate an organization from its competition and define strengths to exploit or weaknesses to correct.
15 Key Criteria Good measures and indicators are actionable They provide the basis for decisions at the level at which they are applied.
16 Customer Measures Customer satisfaction and dissatisfaction Customer retentionGains and losses of customers and customer accountsCustomer complaints and warranty claims.
17 Product and Service Measures Internal quality measurementsField performance of productsDefect levelsResponse times
18 Human Resource Measures Employee satisfactionTraining and developmentWork system performance and effectivenessSafetyAbsenteeismTurnover of Staff (longevity of employees)
19 Organizational Effectiveness Measures Cycle timesProduction flexibilityLead times and setup timesTime to marketProduct/process yieldsDelivery performanceCost efficiencyProductivity
20 Governance and Social Responsibility Measures Organizational accountabilityEthical behaviorRegulatory/legal compliance (ISO 9000)Community service
22 Common Production Quality Measures Defects per unit of ProductionErrors per opportunityCustomer returnsPatient or Customer Waiting TimesProduction per employeeSales per square metre
23 Creating Effective Performance Measures Identify customers requirements and expectationsDefine work processesDefine value-adding activities and process outputsDevelop measures for each key processEvaluate measures for their usefulness
25 Analyzing and Using Data Analysis – an examination of facts and data to provide a basis for effective decisions.ExamplesExamining trends and changes in key performance indicatorsMaking comparisons relative to other business unitsCalculating means, standard deviations, and other statistical measuresSeeking to understand relationships among different performance indicators
26 The Cost of Quality (COQ) COQ – the cost of avoiding poor quality, or incurred as a result of poor qualityTranslates defects, errors, etc. into the “language of management” – $$$Provides a basis for identifying improvement opportunities and success of improvement programs
27 Managing KPI’s and Information Validity – Does the indicator measure what it says it does?Reliability – How well does an indicator consistently measure the “true value” of the characteristic?Accessibility – Do the right people have access to the data?
29 Common Operating Ratios for the Hotel Industry Average room rate (ADR)Revenue per available room (RevPAR)Revenue per available customer (RevPAC)% room occupancyAverage Food Service CheckSeat Turnover (Covers)
35 Questions Suggest suitable KPI’s for an airline. Suggest suitable KPI’s for the retail sector.Suggest suitable KPI’s for the legal profession.Suggest suitable KPI’s for schools & colleges.Suggest suitable KPI’s for a manufacturer.
36 Improving Operational Performance A Medical Practice – Worked Example
37 Patient CareResponse TimesClinical PerformanceCustomer Service