Key Performance Indicators (KPI)

A key performance indicator is a financial and non-financial measure used to

measure progress towards a stated organizational goal or objective.

Key Performance Indicators are quantifiable measurements, agreed to beforehand,

that reflect the critical success factors of an organization. They will differ depending
on the organization. A business may have as one of its Key Performance Indicators
the percentage of its income that comes from return customers. A school may focus
its Key Performance Indicators on graduation rates of its students. A Customer
Service Department may have as one of its Key Performance Indicators, in line with
overall company KPIs, percentage of customer calls answered in the first minute. A
Key Performance Indicator for a social service organization might be number of
clients assisted during the year.
Whatever Key Performance Indicators are selected, they must reflect the
organization's goals, they must be key to its success, and they must be quantifiable
(measurable). Key Performance Indicators usually are long-term considerations. The
definition of what they are and how they are measured do not change often. The
goals for a particular Key Performance Indicator may change as the organization's
goals change, or as it gets closer to achieving a goal.

The purpose of KPIs is to give a business quantifiable measurement of things it has

determined are important to its long-term success. Identifying the most important
KPIs is the first step towards realizing increased profitability and efficiency for most
businesses. For KPIs to be useful, they must be consistently quantifiable, have an
established correlation to the area of the business in need of improvement, and not
give false readings.

The benefits of measuring Key Performance Indicators

• It can be a very quick way of seeing the actual performance of a goal or strategic
objective.
• Decisions can be made much quicker when there are accurate and visible measures
to back them up.
• Can allow management to see the company or department performance in one
place.
• A team can work together to a common set of measurable goals.
Characteristics of KPI
• KPI is always connected with the corporate goals.
• A KPI is decided by the middle or top management.
• It belongs to an individual who is accountable for its outcome.
• A KPI leads to action.
• Few in number.
• They are indicators of performance desired by the organization.
• Easy to understand.
• It should be balanced not undermine each other.
• Users can gauge their progress overtime.
• KPI’s loses its value overtime so they must be periodically reviewed and refreshed.

Key Performance Indicators Reflect the Organizational Goals

An organization that has as one of its goals "to be the most profitable company in
our industry" will have Key Performance Indicators that measure profit and related
fiscal measures. "Pre-tax Profit" and "Shareholder Equity" will be among them.
However, "Percent of Profit Contributed to Community Causes" probably will not be
one of its Key Performance Indicators. On the other hand, a school is not concerned
with making a profit, so its Key Performance Indicators will be different. KPIs like
"Graduation Rate" and "Success In Finding Employment After Graduation", though
different, accurately reflect the schools mission and goals.

Key Performance Indicators Must Be Quantifiable

If a Key Performance Indicator is going to be of any value, there must be a way to
accurately define and measure it. "Generate More Repeat Customers" is useless as a
KPI without some way to distinguish between new and repeat customers. "Be The
Most Popular Company" won't work as a KPI because there is no way to measure the
company's popularity or compare it to others.
It is also important to define the Key Performance Indicators and stay with the same
definition from year to year. For a KPI of "Increase Sales", you need to address
considerations like whether to measure by units sold or by dollar value of sales. Will
returns be deducted from sales in the month of the sale or the month of the return?
Will sales be recorded for the KPI at list price or at the actual sales price?
You also need to set targets for each Key Performance Indicator. A company goal to
be the employer of choice might include a KPI of "Turnover Rate". After the Key
Performance Indicator has been defined as "the number of voluntary resignations
and terminations for performance, divided by the total number of employees at the
beginning of the period" and a way to measure it has been set up by collecting the
information in an HRIS, the target has to be established. "Reduce turnover by five
percent per year" is a clear target that everyone will understand and be able to take
specific action to accomplish.

Key Performance Indicators must be Key to Organizational Success

Many things are measurable. That does not make them key to the organization's
success. In selecting Key Performance Indicators, it is critical to limit them to those
factors that are essential to the organization reaching its goals. It is also important
to keep the number of Key Performance Indicators small just to keep everyone's
attention focused on achieving the same KPIs.
That is not to say, for instance, that a company will have only three or four total KPIs
in total. Rather there will be three or four Key Performance Indicators for the
company and all the units within it will have three, four, or five KPIs that support the
overall company goals and can be "rolled up" into them.
If a company Key Performance Indicator is "Increased Customer Satisfaction", that
KPI will be focused differently in different departments. The Manufacturing
Department may have a KPI of "Number of Units Rejected by Quality Inspection",
while the Sales Department has a KPI of "Minutes A Customer Is On Hold Before A
Sales Rep Answers". Success by the Sales and Manufacturing Departments in
meeting their respective departmental Key Performance Indicators will help the
company meet its overall KPI.

Categorization of indicators
Key Performance Indicators define a set of values used to measure against. These raw sets of
values, which are fed to systems in charge of summarizing the information, are called indicators.
Indicators identifiable as possible candidates for KPIs can be summarized into the following sub-
categories:

 Quantitative indicators which can be presented as a number.

 Practical indicators that interface with existing company processes.
 Directional indicators specifying whether an organization is getting better or not.
 Actionable indicators are sufficiently in an organization's control to effect change.
 Financial indicators used in performance measurement and when looking at
an operating index

[edit]Some Important Aspects

Key performance indicators (KPIs) are ways to periodically assess the performances of
organizations, business units, and their division, departments and employees. Accordingly, KPIs
are most commonly defined in a way that is understandable, meaningful, and measurable. They
are rarely defined in such a way such that their fulfillment would be hampered by factors seen as
non-controllable by the organizations or individuals responsible. Such KPIs are usually ignored by
organizations[citation needed].

In order to be evaluated, KPIs are linked to target values, so that the value of the measure
can be assessed as meeting expectations or not.

Identifying Indicators of Organization

Performance indicators differ from business drivers & aims (or goals). A school might consider
the failure rate of its students as a Key Performance Indicator which might help the school
understand its position in the educational community, whereas a business might consider the
percentage of income from returning customers as a potential KPI.
The key stages in identifying KPIs are:

 Having a pre-defined business process (BP).

 Having requirements for the BPs.
 Having a quantitative/qualitative measurement of the results and comparison with set
goals.
 Investigating variances and tweaking processes or resources to achieve short-term
goals.

A KPI can follow the SMART criteria. This means the measure has a Specific purpose for the
business, it is Measurable to really get a value of the KPI, the defined norms have to
be Achievable, the improvement of a KPI has to be Relevant to the success of the organization,
and finally it must be Time phased, which means the value or outcomes are shown for a
predefined and relevant period.

Balanced Scorecard

The balanced scorecard is a customer-based planning and process-improvement

system aimed at focusing and driving the change process. It translates strategy into
an integrated set of financial and nonfinancial measures that communicates the
organizational strategy to employees and provides them with feedback on which they
can take action to achieve their objectives. Traditionally, balanced scorecards include
both objective and subjective measures addressing four major areas: Financial
Perspective, Customer Perspective, Internal Business Process, and Learning Process
and Growth Perspective.

 Financial: encourages the identification of a few relevant high-level financial

measures. In particular, designers were encouraged to choose measures that
helped inform the answer to the question "How do we look to shareholders?"
 Customer: encourages the identification of measures that answer the
question "How do customers see us?"
 Internal Business Processes: encourages the identification of measures
that answer the question "What must we excel at?"
 Learning and Growth: encourages the identification of measures that
answer the question "Can we continue to improve and create value?
PREPARATION OF THE BALANCED SCORECARD

One of the main features of the balanced scorecard is the set of measures that
addresses the company's business performance and success in strategy
implementation. For a balanced scorecard to be effective, the relationships among
the objectives and measures must be explicit so that they can be managed and
validated. Measures that interact on the basis of established cause-and-effect
relationships make the scorecard as comprehensive as possible. For example, the
subjective measure of customer satisfaction typically is correlated with a business's
market-share growth.

A sensitivity analysis can show what effect, if any, a marginal change in one
balanced scorecard measure would have on any of the others. To determine optimal
targets, the measures need to be weighed, and the weighted average of a success
indicator must be calculated. This allows for changes to one or more measures to be
tested to maximize the success indicator. Changes in specific measures that
maximize the success indicator should be included as targets in the balanced
scorecard.

EVALUATION OF THE TARGETS

When actual results of business performance become available, an ex post

evaluation can measure the effectiveness of the scorecard targets--comparing the
concrete numbers to the numbers projected by the balanced scorecard. The actual
results may reveal flaws in the causality relationships established when selecting the
scorecard's measures.

Scorecard evaluation is a continual process. When performed at the end of each

reporting period, it enables management to constantly measure the effectiveness of
the balanced scorecard targets and further refine and focus the scorecard to improve
its effect.

APPLICATION

Most experienced managers have an intuitive understanding of the relationships

between and among measures. They know where to focus improvement efforts to
achieve desired results. The balanced scorecard quantifies this intuitive
understanding to project possible results. By using the analysis and success
indicator, managers have a bottom-line result (financial and non-financial) based on
actual efforts.
ENHANCE PROFITABILITY

Because the balanced scorecard includes subjective as well as objective measures, it

provides management with a comprehensive view of operational results. The
performance index allows the weighting of the measures to determine an overall
result. The incremental approach of the balanced scorecard allows management to
develop realistic alternatives and be able to test causality, determine a range of
target measures, and evaluate the reasonableness of the targets for future periods.
The example presented in Table 2 focused on changing just one measure, the
number of customers’ partnerships. Further modeling would be necessary to
investigate changes in multiple measures. Organizations need to consider their
options, but a weighting of objective and subjective measures based on planned
strategies and formulated analysis can enhance productivity and profitability in the
manufactured and motor homes industries.

Key Result Areas (KRA)

“Key Result Areas” or KRAs refer to general areas of outputs or outcomes for which
the department’s role is responsible.
Key Result Area in simple Terms may be defined as Primary responsibilities of an
Individual, the core area which each person is accountable.

Importance of KRAs.
• Set goals and objectives
• Prioritize their activities, and therefore improve their time/work management
• Make value-added decisions
• Clarify roles of department or individual
• Focus on results rather than activities
• Align their roles to the organization’s business or strategic plan
• Communicate their role’s purposes to others
Conditions of KRAs
• Key result areas (KRAs) capture about 80% of the department’s work role. The
remainders are usually devoted to areas of shared responsibility.
• Each KRA should capture at least 5 % of work role
4. Types of KRAs:
• Training KRAs
• Management KRA
• Purchasing KRA
• Administration KRA
• Finance KRA
• Manufacturing KRA
• Quality KRA
• Sales KRA
• Marketing KRA

Training KRAs
Training KRAs can include: (can apply for KPIs management)
1. Identify causes of delays in conducting training
2. Take training in the areas and to upgrade the latest developments in these areas. It may
include subject knowledge, communication skills, computer skills,
3. The feedback from participants
4. Feedback on Effectiveness of training conducted 3 months ago to be take from superiors of
the participants to understand usefulness and improvement areas.
6. Conduct Training of 5 batches.
7. Prepare method for calculating cost of training.
5. Develop training module content in the area.

Management KRA include KRAs for general management level

1. Board of Directors relationship
2. Productivity
3. Financial Strategy
4. Business Development
5. Technology management
6. Internal operations.
7. Market development
8. Profitability
9. Organizational structure
10. Community relations
11. Regulatory compliance
12. Assets & Liability management
13. Customer satisfaction

Purchasing KRA
Purchasing KRA include KRAs (can apply for KPIs management)
1. Outsourcing strategy / development / management
2. Zero production losses due to material shortages.
3. Timely delivery of goods at the respective sites.
4. Stock audit to ensure reconciliation of physical stocks.
5. Developing & negotiating with suppliers for obtaining timely procurement of materials at
favorable commercial items.
6. Assessment of performance of the vendors.
7. Logistics operations.
8. Introducing innovative initiatives in operations.
9. Reduce on-hand inventory to the lowest feasible levels consistent with customer service
objectives.
10. Reduce materials costs to the lowest levels consistent with quality objectives. Cost saving
budgeting and targeting.
11. Purchasing policy and planning.
12. Development & implementation of key procurement strategies.
13. Formulating budget for timely procurement of spares & materials.
14. Develop statistical methods to estimate future materials requirements.
15. Assessing project material requirements and designing purchase schedule.

Administration KRA
Administration KRA
1. Scheduling
2. Project Support
3. Safety & Health Management
4. Vehicle Management
5. Visitor Protocol
6. Records Management
7. Filing
8. Administrative Support.
9. Internal Customer relations.
10. Equipment maintenance

Finance KRA
Finance and Accounting KRAs include KRAs (can apply for KPIs management)
1. Cost control
2. Internal audit
3. Regulatory reporting
4. Credit control
5. Financial records
6. Payroll
7. Cash flow forecasting
8. Budgeting
9. Costing
10. Capital expenditure
11. Financial analysis
12. Credit referencing
13. Management information

Manufacturing KRA
Manufacturing KRAs include KRAs (can apply for KPIs management):
1. Customer Satisfaction
2. Good working conditions
3. Product development.
4. Preventive maintenance
5. Delivery management:
• Minimize downtime and
• Meet annual production target as per expected cycle time.
6. Resource Utilization
• Maximizing quality of product, efficiency of production and maximize production rates.
• Compliance of corporate policy norms.
• Maximize plant efficiency through teamwork and innovation
7. Operational costs.
• Minimize the scarp level/wastage reduction.
• Control overhead expenditure.
• Stock Control.
• Reduction in operating costs.
• Minimize the inventory levels.
8. Implementation of quality control programs
• Apply newer management techniques such as ISO, TQM, Six Sigma, etc.
• Application and acceptance of new technology.
• Shop floor improvements.
9. Productivity: Improvement of process.
10. Record Keeping.
Quality KRA
Quality KRAs include KRAs (can apply for KPIs management)
1. Develop and implement quality management strategy and plans.
2. Validation of process, instruments, methods, etc.
3. Quality assurance for the projects and the manufacturing set up.
4. Evaluation of new suppliers and vendors.
5. Minimization of rejection & rework.
6. Customer’s acceptance include: establish quality standards & implementing quality control
requirements of the customers and handle complaint.
7. Standardization for goods and work inspection.

Sales KRA
Sales KRA include components as follows (can apply for KPIs management):
1. Budget preparation / sales expenditure.
2. New Business Acquisition
3. Net sales
4. Gross Contribution
5. Key Account Management
6. Territory Management
7. Customer Relationship Management
8. Sales forecasting. Market research.
9. Building client relationship
10. Consultative Selling
11. Agency Relations.
12. Product Management
13. Sales Planning
Marketing KRA
Marketing KRAs include KRAs (can apply for KPIs management):
1. Market research
2. Marketing materials
3. Media relations
4. Sales support
5. Agency relations
6. Advertising
7. Pricing
8. Field support
8. Promotional strategy

Business Intelligence Solutions (BIS) lead to better business decision making through
providing access to enterprise data for easy analysis against Key Performance
Indicators (KPIs). This is achieved through having more information available at all
levels of an enterprise and enabling each management level to be more responsive
to current market trends. Every aspect of the business can be co-ordinated efficiently
and dealt with at various levels of management.

As technology has improved, the volume of information available for analysis has
increased significantly and more efficient systems have been designed to handle
the data collection process. The data collection services and tools available ensure
even microscopic pieces of information are included for analysis whereas they would
have been ignored previously due to not being cost-effective to collect.

BIS plays a strong role for an enterprise of any size. The development of automated
collection tools has helped reduce the time cost and monetary cost of intelligence
gathering. A smart business will look at evaluating every piece of data individually
and collectively to help make more informed decisions. BIS enables collective data to
be analysed for trends and then for every subset of data to be drilled down and
analysed individually.

Business Intelligence comprises the following main elements:

1. Analytics
2. Customer Relationship Management (CRM)
3. Dashboards
4. Data Warehouse
5. Data Integration
6. Data Management
7. Data Mining
8. Extract, Transform and Load (ETL)
9. Online Analytical Processing (OLAP)
10. Business Performance Management (BPM)
11. Reporting
12. Scorecard

Implementing BIS in Enterprise

There will be a significant cost of implementing any BIS if existing applications exist
for any part of the overall process. The ideal scenario would be to use solutions for
each aspect of BIS from the same vendor or where they are proven to be able to
integrate with other vendors. In some cases, it may be more cost-effective migrating
existing processes into a bespoke system to facilitate better control and
understanding. This will reduce the training costs associated with training new
personnel as they will only be required to learn one system as opposed to multiple
existing systems.

After the decision has been taken to implement business intelligence solutions, a set
of criteria must be addressed from the outset in order to gain the most benefit. The
most important areas for consideration are:

1. Response Time
Considerations will need to account for data capture time, ETL processing time,
caching and reporting time in addition to user expectations. For example, if the
service is offered to clients and they are informed statistics are updated in "real-
time", they do not expect to be waiting for a few minutes every time they login to
check stats.

It would be unwise to have every piece of data update in "real-time" as it may cause
too much load on the server and result in reliability issues. Instead, only the absolute
necessary pieces of information should be updated in "real-time". This area needs to
be clearly defined in the design process - what constitutes essential information.

2. Data Refresh Rates

Automated queries and database dumps can be routinely scheduled to take
snapshots of actual statistics to reduce potential problems with the live data capture.
Providing only the vital information is extracted, it can be set to retrieve a database
dump every minute if necessary. The data integration tools should be designed to
have minimal impact on a server when importing new data sets to facilitate smooth
data exchanges. If designed correctly, management would be querying backup
data from the latest data refresh rather than causing additional load on the live
server.

3. Visual vs. Analytical Dashboards

Statistical information is essential to represent the current state of affairs and should
be available for drilldown analysis. However, a visual dashboard should suffice to
present a quick overview of affairs with any changes highlighted. It is especially
useful for CEOs to see actual performance against KPIs instantly.

4. Data Delivery
It isn't necessary for every managerial level to have access to all the data collected,
but it is necessary for them to have access to all data relevant to their decision
making. In this instance, BIS must be designed from the outset to have flexibility in
assigning different roles. A bespoke solution that enables new roles to be created
where specific sets of data can be extracted and delivered for analysis without
needing to cross reference with other departments is essential.

5. Scalability
After an initial assessment of enterprise requirements it is still important to consider
scalability issues and possible future requirements. Any BIS implementation should
adequately provide the capability for future modification and expansion without
posing any significant risk to current procedures and management requirements.
The criteria above is not extensive but does cover the most common considerations
that can be overlooked when designing bespoke BIS applications. The more thorough
the planning undertaken before designing a bespoke solution, the more useful and
cost-effective the end solution will be.

The future of Business Intelligence

With the advent of new technology enabling more efficient data capture and
processing, traditional business intelligence has started to shift from reactive to
proactive in the sense artificial intelligence (AI) can aid decision making when certain
conditions exist. This helps to free up more time for managers to focus on other
areas like staff motivation and training.

There will continue to be a need for managers to analyse data against KPIs, but the
majority of decisions can be automated through use of AI and alerts sent out for
manual intervention if the data produces any anomalies. The role of artificial
intelligence should be defined from the outset in order to be able to manually disable
or adjust it according to enterprise goals. Failure to adequately define the AI role can
lead to a loss of control in the decision making process.

Overall, business intelligence and BIS form an integral part of every enterprise and if
used correctly will help improve efficiency and help meet both short-term and long-
term objectives.

Business Intelligence portal

BI Portal is application that functions as a gateway to access and manage business

intelligence reports, analytics, data mining and dashboard applications as well as
subscriptions. It can be developed as a custom-built application(using Visual
Studio.NET, for example) or using an off-the-shelf solution

BI Portal efficiently provides end users with a unified environment which contains all
the key business information they need, thus improving accessibility, increasing
productivity and optimizing organizational decision making processes.

BI Portal Key Elements

BI Portal contains six components whose integration creates significant value:

• Single Entry Point – a single application which is customized according to

the organization's needs and requirements, and contains all the relevant
information. This entry point enables the user to easily navigate messages,
external applications, etc.
• Flexible Organizational Reports View – the Organizational Reports View is
organized in a flexible tree form, which gathers various types of information
(dashboards, report, documents) into one easy to use and intuitive structure.
• Personal Favorites – each user has her/his own personal area in which
personal data can be saved. e.g. reports from the organizational reports view,
personal documents, etc.
 • Business Dictionary – a component which contains definitions of all the
relevant business terms in one place. The application can be customized to
link different data items such as reports from organizational reports view to
these definitions. This promotes the creation of unified business language in
the organization.
• BI Search Engine – at each step of the navigation, the end user can search
for data items, reports and business definitions easily and intuitively.
• BI Portal Usage Analysis – in order to improve the understanding of the
organizational points of interest, the BI Portal provides a variety of built-in
reports, which analyze users' usage of BI Portal from various aspects (identity
of users, used portal areas, common reports, etc).

The BI portal's main functionality is to provide a navigation system of the DW/BI

application. This means that the portal has to be implemented in a way that the user
has access to every and all functions of the DW/BI application. This is normally no
easy task because the DW/BI applications can have a very complex and big
structure.
The BI portal needs to be easy to use and understand, and if possible have the same
or similar outlook as other applications or web content of the organization the DW/BI
application is designed for:

1. The Data Warehouse Lifecycle Toolkit (2nd ed.). Ralph Kimball

(2008).
2. Microsoft Data Warehouse Toolkit. Wiley Publishing. (2006)

A key performance indicator (KPI) is a specific measure of an organization's performance in some

area of its business. It is a very general concept, with different implementations depending on the
type of business and goals of the organization.

Examples of KPIs may include such things as the percentage of deliveries made on time,
total inventory at any given time, distribution costs as a percentage of total sales, accuracy of
invoices sent to clients, or lead time for a product.