Key Performance Indicators

Background

The term KPI has become one of the most over-used and little understood terms in business
development and management. In theory it provides a series of measures against which
internal managers and external investors can judge the business and how it is likely to perform
over the medium and long term. Regrettably it has become confused with metrics – if we can
measure it, it is a KPI. Against the growing background of noise created by a welter of such
KPI concepts, the true value of the core KPI becomes lost.

The KPI when properly developed should be provide all staff with clear goals and objectives,
coupled with an understanding of how they relate to the overall success of the organisation.
Published internally and continually referred to, they will also strengthen shared values and
create common goals.

What are the key components of a KPI?

The KPI should be seen as:

Only Key when it is of fundamental importance in gaining competitive advantage and is a
make or break component in the success or failure of the enterprise. For example, the level of
labour turnover is an important operating ratio, but rarely one that is a make or break element
in the success and failure of the organisation. Many are able to operate on well below
benchmark levels and still return satisfactory or above satisfactory results.

Only relating to Performance when it can be clearly measured, quantified and easily
influenced by the organisation. For example, weather influences many tourist related
operations – but the organisation cannot influence the weather. Sales growth may be an
important performance criteria – but targets must be set that can be measured.

Only an Indicator if it provides leading information on future performance. A considerable
amount of data within the organisation only has value for historical purposes – for example
debtor and creditor length. By contrast rates of new product development provide excellent
leading edge information.

Obviously KPI's cannot operate in a vacuum. One cannot establish a KPI without a clear
understanding of what is possible – so we have to be able to set upper and lower limits of the
KPI in reference to the market and how the competition is performing (or in the absence of
competition, a comparable measurement from a number of similar organisations). This means
that an understanding of benchmarks is essential to make KPI's useful (and specific to the
organisation), as they put the level of current performance in context – both for start ups and
established enterprises – though they are more important for the latter. Benchmarks also help
in checking what other successful organisations see as crucial in building and maintaining
competitive advantage, as they are central to any type of competitive analysis.

Start with what you need to measure and monitor

Different organisations need to monitor different aspects of their environment. For example,

legal. stakeholder relationships. employee share utilisation. savings schemes. time capital spread ratio. successes failures/ lessons learnt. meetings/ month. balanced PEST elements. document loss. Knowledge centre Focus of activity Possible KPI Administration Leadership. SCORE. vision statement. planning resolution cost. recruitment appraisal. investment appraisal. insurance. ratio. disposals. recruitment resolution speed. planning and monitoring. prioritisation. ISO 9000. project and safety. portfolio theory. budgeting. litigation. decision making. meeting time. ISO success. building. critical success sqm or cost per employee for factors. health bonus systems. share options. utility cost/ utilities.barriers to entry. BEV. the airline industry has a complex set of issues many of which (but not all) are different from the dairy farmer. AER. accidents. RSM. operating financial review (OFR). SBS. territorial imperative. certification. BS index. facilities total space. cost cutting. complaint trade associations. technology audit. risk management. utility cost.CGAL. facilities breaches. and safety breaches. security time management. golden high impact/ high probability circle. space pensions. This “kit” provides a rapid introduction of the key monitoring components. mosaic management. decisions. trade offs. theft. wages 14000. business model. creativity. These are the key components of the range of monitoring elements that can be considered in the accompanying table below.secrecy. assessment). complaint appraisal. conditions (strategic risk impact analysis. premises review. synergy. team service satisfaction levels. authority/ productive hours %. noise. legacy issues. training. Ibis has created a number of separate business monitoring modules for medium sized companies which we believe cover the majority of requirements for the development and maintenance of their organisation. temperature. scorecard. that are part of a bottom up planning system based around knowledge centres. health budget ratio. time study. cost per keeping. assumptions and boundary corporate governance. employee suggestion. levels. whistleblowing. premises operating efficiency. contractual. health and safety. average effectiveness. forecast grid. cascade investment. trade offs. portfolio risk MBO. % mentoring . design for market cost ratio. communication. complaints. For the typical medium enterprise. environmental audit. pension cost. 80 monitoring elements are part of the standard Ibis “kit” which is initially proposed during the introduction of knowledge centers. % hurdle rate. Abacus principle. cost/ market cost ratio. internal working conditions. % outsourcing. % responsibility. internal service satisfaction effective headcount. KFR. management. SBU insurance costs/sales. quality circles. standard operating procedures. budget ratio. meeting management. succession planning. creativity. stress. fringe benefits. acquisitions. security. noise.

depreciation %. BEV. cost cutting. EFT%. convertibles.PEG. GAAP. and liquidity ratios. reference sale. successes failures/ lessons learnt. channel. recruitment appraisal. market budgeting. budget ratio. expectation fulfillment gap. share by segment. bid channels. accounting ratio. cash interest documentary credits. cascade investment. EBITDA cost capitalisation. service call quality circles. synergy. % market spread. investment appraisal. price index. customer keeping. competitive bidding. SCORE. time keeping. sales channels. average discount. customer customer satisfaction. James' rule. trade BEV/EBITDA. quality circles. sales management. mentoring financial reporting. effective headcount. branding %. marketing mix. cutting. levels. budget (CIR). marketing myopia. prioritisation. CLV. recruitment appraisal. hedging. seasonality ratio. trade offs. cost customer panel. ratio. CER. drivers. success. marginal profitability. average sales value. % terms and conditions. customer organisational buyer behaviour. overdue accounts. payment systems. portfolio analysis. capital allocation. of finance. EPS. internal service satisfaction Marketing/ sales Planning and monitoring. hours %. synergy. cost offs. customer investment review outsourcing. tax assumptions. dividend rate%. sales tax. currency internal service satisfaction management. pricing advertising awareness. deferred consideration. cash flow. BDR.Finance Planning and monitoring. product age spread. mosaic management. cross selling. DER%. productive fraud. appraisal. funding options. range sale%.cascade investment. revaluation accounting. P/E. seasonality. cost per lead. prioritisation. trial rate. sheet. time investment review. activity. market productivity. project asset register. value chain. decision making. cash management. balanced scorecard . MBO. . transition rate. entrants. invoicing. capex. trade offs. tax management. mosaic channel. % repeat purchase. warranty advantage. profit and loss. balanced scorecard. decision making. sales by planning.training. products/services out times. technology audit. customer satisfaction. enquiry response time. branding. brand accounting. charge. creativity. customer customer spread. FCF. time management. competitive churn. depreciation. customer loss. market size. Single Block advertising productivity by Theory. MER. gross yield. sales SCORE. cost currency/ debt currency ratio. claims. distribution per converted lead.profitability. %. reference sale. market share. complaints. successes failures/ lessons learnt. team building. FER. creativity. investment return. credit management. price elasticity. sensitivity analysis. value chain. substitutes. succession planning. budgeting. call centres. source and application of funds. project success. SPT %. audit. % recruitment appraisal. management. budget ratio. capital allocation IFRS. capital allocation profile. quantitative analysis.investment success rates. trade offs. networking. technology audit. debt age. succession competitive score. MBO. Financial ratios. product age. sales tax rate %. market dynamics contingent liabilities. market research. customer transition. policy. balance % outsourcing. pricing power. productive hours (width/depth). EGMG ratio.

JIT% energy efficiency ratio. complaints. offs. game theory. logistics FMS. management accounting. obsolescent support. Cost variances. MBO.internal service mentoring satisfaction . management. % design. trade offs. aggregate demand policy. internal service satisfaction levels.order processing cycle. delivery investment. competitive bidding success %. price elasticity. waste rates.technology audit. delivery standard costing.production failure rates. OR. training. customer spread. recycling%. creativity. design. positioning variance. return on plant. negotiation. suppliers. team building. decision making. TPM. vendor ranking. product channel management. distant data stock. distribution structure (warehousing. budget ratio. supplier spread outlet location) and physical distribution ratio. CIR%. technical ratio. recycling. quantitative %. load utilisation. E-enablement. SER. PLM. balanced scorecard. obsolescent stock. set up time. out of backorder. appraisal. segmental leadership. SCORE including cost cost. postponement. capacity. budget logistics / service budgeting. recruitment project success. complaints. recruitment appraisal. country spread. networking. warranties. JIT. product/ service effective headcount. waste management. effective headcount. supply chain management. pollution levels. prioritisation. TDA's. capacity utilisation. time failures. succession planning. efficiencies. branding. management. TQM. channel members. space utilisation. pricing. cascade emergency call out. synergy. training. service satisfaction levels. sophistication. order processing. scheduling. % outsourcing. SPC. time keeping. cutting. partnering. ratio. condition peak capacity %. mosaic downtime. MRP. number of components. inventory levels. emergency delivery. back order %. time AER. seasonality internal service satisfaction ratio. project success. time based competition. EOQ. design for operating efficiency. productive hours %. trade production cycle times. quality circles. analysis. mystery shopper. internal appraisal. activity based costing. obsolescent stock production equipment age. product spread. number of capture. % mentoring Production/ Planning and monitoring. suppliers. standardization. team building. management. successes failures/ lessons learnt. product age spread ratios. vendor rating. STR. stock %. recruitment appraisal. customer care. investment PLER. purchasing. management. supplier monitoring.

SCORE. ratio. recruitment appraisal. eight "S". ratio. skills. ratio.turnover. trade offs. wages ratio. project shopper. stress. succession planning. site SCORE. Intranet. training synergy. downtime. creativity.wages.productive hours %. prioritisation. systems. training. modeling. staff ratio). effective time keeping. project success. telecommunications and IT productive hours %. employee absenteeism. balanced scorecard. quality of data. appraisals. bonus systems.stability. mosaic % outsourcing (temporary management. security. time keeping.successes failures/ lessons learnt. hits.mystery information overload. software alignment. cloud ITER. service satisfaction whistleblowing. balanced scorecard . E-enablement. satisfaction levels. access speed.productivity. quantitative analysis. web prioritisation. Productivity. internal service investment. trade offs. costs. breaches. diversity index. encryption. budget ratio. cost cutting. system trade offs. % outsourcing. % mentoring training. employee record keeping. timekeeping. PER. systems analysis. vacation planning. SEO. ratio. cascade apprenticeship. labour cost%. mosaic management.quantitative analysis. satisfaction levels. platform.Personnel Planning and monitoring. team building. MBO. successes failures/ lessons learnt. time management. information flow map. data mining. site click through. creativity. training. Management information budgeting. decision making. span of control. CH/WH industrial relations. investment appraisal. technology audit. budget ratio. disputes. building. PDP. Extranet. recruitment appraisal. % mentoring IT Planning and monitoring. management information systems Extranet. overtime. synergy. training needs analysis. absenteeism. recruitment appraisal. internal days. budget budgeting. team appeals. MBO. CNCER. teleworking. cost cutting. timekeeping ratio. overtime%. effective headcount. Intranet. decision making. quality circles. succession planning. trade offs. . EDI. discipline. (MIS). wages technology audit. artificial intelligence. functionality. web position. headcount. web design and management. budget Noah principle. internal service satisfaction. cascade success. security computing. time management. recruitment investment. data storage. internal service satisfaction levels.

planning and Risk score. Then a target level of achievement can be entered. TBC. MBO. simulations. levels.innovation Product age spread. IPR trade offs. productive cannabilisation. creativity. TEWT. product age profile. synergy. setting trigger rates.Product/ service Planning and monitoring. team building. project review. the benchmark level can normally be introduced (getting to benchmarks is often a difficult process and one requiring a mixture of low cunning and/or sophisticated analysis). high risk/high training. budget management. budget decision making. Let us take an example of a financial management module for an established manufacturing company and what it will tell us. trade offs. one can then establish what the current level of performance is in a measurable and understandable way. This is the current performance. hours %. % above/below probability. license fees. training. technology transfer. % appraisal. Black Swan theory. IPR. barrier conditions. identification of new maintenance costs. % technology audit. IPLC. balanced scorecard.ideas. SCORE. successes failures/ ratio. mosaic %. planning.investment appraisal. mover advantage. halo effect. ratio. % successful development/ commercialisation. succession cycle time. recruitment appraisal. response times. budgeting. successes failures/ budget ratio. time. From industry sources. investment outsourcing. project success. planning monitoring. % lessons learnt. R&D development matrix. quality circles. IPR creativity. protocol score. Financial knowledge centre monitoring components . communication. team creation. mentoring team building. period of grace.internal service satisfaction Contingency Authority and responsibility. KFR. rate %. IPR%. total lessons learnt. % budget points. royalty product/ service concepts. assumptions.recruitment appraisal. budget. effective headcount. budgeting. role play. time internal service satisfaction management. testing. risk profile. NPDER. infringements. benchmark and target levels For each monitoring module. cascade investment. impact analysis Establish current performance. stage gate. action plan. first specification. prioritisation. certification. % SOP. strategic fit. training. success reducing potential for failure. failure points. protocol. outsourcing. SCORE.

2 Gearing (DER) 15 38 15 Debt age (years) 8. .3 3.3 10 Interest cover X 8.7 Z score 3 7 3 Tax charge % 12 19 10 Depreciation % 15 12 n/a Cost of finance % 3 8 3 EFT 82 n/a 88 Overdue accounts % 2 n/a 1 STP% 92 n/a 95 FER% 3 n/a 2.7 10 AER % 8 12 6 SER % 10 12 6 Debtor length (days) 102 95 60 Creditor length (days) 60 63 60 Stock turn/year 5 4 8 Current ratio 4 3 4 Budget ratio 95 n/a n/a Capex ratio 8 4 7 WCR 1. For projects involving significant expenditure the measurement of stage gate components will also significantly add to the level of control at a knowledge center level. Add KPI project control elements This ratio based analysis is combined with a review of individual projects – normally based around the three key performance criteria. whether the project is on time. on budget and on specification.2 n/a 0.5 6. Factor Current Benchmark Target Gross profit % 68 52 72 ROCE % 13 10 20 FCF 12 n/a 10 BEV/EBITDA 0.7 3. but obviously not all components will meet the criteria of being a KPI – otherwise we are back into the problem of measuring everything and not concentrating on a limited number of core criteria.6 Project success ratio 90 n/a 90 Internal satisfaction level % 67 n/a 90 Effective headcount % 64 n/a 75 We can gain an enormous amount of information and control from such a chart.2 1.

An example from the same knowledge centre would look like this: Project Due date On time On budget On spec Stage gate Debt refinancing August Yes Yes Yes None Tax review September Yes Yes Yes None Sales insurance August Yes Yes Yes None How do I use such a format to develop and understanding of what is a KPI? As different individuals and organisations will put a different emphasis on each item of information a definitive list of what is and what is not a KPI will depend on individual decisions. established companies on operational performance. Is the control information key to the success of the organisation? Can we measure it and influence it? Does it provide leading edge indications of future developments? Which measures in the above chart are key? Gross profit is one key measure to the success of the organisation. However. return on capital employed and Z scores as their key performance . Are these performance measures – can we quantify them and influence them? Yes Do these provide leading edge indications of future performance? Yes The conclusion from this analysis is that in financial reporting the company should concentrate on gross profit. It would be the Ibis argument that the other components of the chart are not key – they are valuable items of information but are not make or break aspects of company management (unless they are grotesquely different from benchmark values). The most rapid way to establish the KPI within any set of monitoring information is to work through the three criteria in sequence. gross profit margins above that of the competition provide clear evidence of competitive advantage. one can set some guidelines. Z score is a measure of the liquidity of the enterprise and clearly defines positive or negative trends. Start up enterprises need to place their emphasis on structural factors. Research shows that survival rates are linked to levels of gross profit. Return on capital employed is another key measure of the success of the organisation. The ability to use investment effectively is central to effective long term development. and will vary considerably according to the stage of company development.

budget and specification to project reporting would also be a natural addition. global sector specific. return on capital and Z scores are standard elements. fiscal and political development and where the emphasis for change should have been placed. Including time. A typical structure would comprise the following emphasis on benchmark creation for each knowledge center: Administration – an emphasis on global non. These KPI's will change over time. but their creation as part of the initial creation of each knowledge centre will focus and direct their operational activities. Production/ service delivery – global sector specific. there is a rapid re-assessment of the true competitive position of the enterprise or organisation. project success rates. Marketing – a mixture of global sector specific and local sector specific. KPI's and benchmarks One of the most valuable contributions that KPI analysis can deliver is an understanding of the true nature of the competitive environment. A forthcoming article on the development of Greece before and since joining the euro zone which will be available on the controversial cases page demonstrates quite clearly where Greece failed in its economic. IT – an emphasis on global non-sector specific. From that one can establish the KPI's and the sensible reference points for measurement. the identification of KPI's in each of the operational areas or knowledge centres also assists the enterprise in plan development.sector specific. The balanced scorecard and KPI's In addition to the creation of the enterprise balanced scorecard. priorities for change and potential returns on investment become clearer. The Ibis analysis looks at the enterprise on the basis of knowledge centers as a starting point. benchmarks and prioritisation Once the organisation has identified the relevant KPI's and benchmarks. Other components within the financial reporting module that might be considered as KPI's are factors such as the levels of gearing (debt/ equity ratio – DER). Personnel .national market non-sector specific. KPI's. Finance – a mixture of national market specific and global sector specific. bad debt rates. New product development – global sector specific When this approach is introduced. in which gross profit. KPI's and the management information system . These will vary from knowledge center to knowledge center with a mixture of global non-sector specific.indicators. and free cash flow (FCF). naational market non-sector specific and local sector specific. Both gross profit and return on capital employed are part of the “model” balanced scorecard for overall objectives that Ibis propose for the majority of enterprises as part of their planning platform.

. Thus the choices of KPI determine what will drive that part of the enterprise and what information must be collected to analyse and manage it. To assist in the rapid creation of such bottom up planning units. Once these are introduced. KPI's have a vital role to play in: Action planning and implementation with an emphasis on management by objectives which will include a standardised rate of return and detailed project control. the creation of a business plan and standard operating procedures is available from Ibis. reducing information overload and information for information sake. Training on key performance indicators. The KPI “pack” . They set priorities for investment appraisal.In a decentralised planning system focused around knowledge centers the choice of key performance indicators is the first stage in the re-evaluation of the information system to make it more valuable and relevant to the operating unit rather than one that is centrally provided. exit planning and survival and recovery planning. market penetration. Ibis has identified a basic set of key performance indicators which should serve as a backbone for any enterprise monitoring system. and the choice of emphasis that should be given to the main strategies within the golden circle. coupled with typical benchmarks for each main sector. the specific benchmark requirements of the enterprise can be added so . Training as part of a company wide approach to focusing staff and management on essential operational requirements. Central to business planning as a core part of the business plan outline.a standard part of Ibis enterprise development One of the first steps in the creation and maintenance of expert systems must be the creation of knowledge centers and the identification of relevant key performance indicators and benchmarks. consolidation (including cost cutting). Where else are KPI's valuable? The KPI is central to a number of other elements in the planning platform which provides the basis for answering the three crucial planning questions: Where are we? Where do we want to be (and when)? How are we going to get there cost effectively? In addition to the creation of knowledge centres and business monitoring. Such information gathering or software choices create information networks that are relevant and provide data which is used specifically for operational purposes.market development and product development. Identification of necessary actions in change management.

that competitive advantage can be continuously improved. The performance of hospitals are graded on the basis of indicators viz. BOR: Bed Occupancy Rate which reflects the popularity of the hospital in terms of inpatients. 2. Small treatment diseases => Larger TOR 4. complicates cases => smaller TOR 3. Feedback of the information to DMCs for reconciliation of discrepancies observed and rectification of the bottlenecks is sent regularly. referral system. Number of Lab Tests indicates the availability and efficiency of diagnostic facilities in a hospital Performa and reporting formats have been made uniform for periodical reporting. Rigorous monitoring can sensitize the management & providers and bring overall improvement in the health delivery. All the 17 DMC offices have been computerized to analyze and transfer data of all the health institutions to H. All HPI are reviewed in joint meetings of Civil Surgeons and DMC by senior heads. cleanliness. 9. OP/ IP Outpatient/Inpatient Ratio: Indicator of the manner in which inpatient services are being utilized in the hospital. Surgeries: Numbers of Surgeries indicate the provision and utilization of surgical operation facilities. Number of X-rays Scans: Utilization of X-rays and scanning machines provides a good indicator of how the hospital is functioning. Selected hospitals are being computerized to report accurate data and guide information. Monthly reports are received by the 10 of succeeding month. user charges are core quality indicators the introduction of whom there is marked improvement in the functioning and . AVLS: Average Length Of stay indicates the time the patient is retained in the hospital. A continuous monitoring program has been implemented under which each DMC reviews the overall performance of the hospitals in the district and SMO In charge review the performance of each specialist doctor in their hospitals against the fixed benchmarks. TOR : Turn Over Rate indicates the speed with which patients on any bed are rotated.Q. Special trainings have been given to the existing staff for handling the computers both for public utility and internal information. 6. swap test. waste management. 1. presence of vital drugs. 7. All HPI have shown Manifold increase. Number of Deliveries: another parameter to judge the functioning of a hospital 8. through internet. The performance efficiency of the hospitals is being judged through Performance Indicators viz. managerial training as well as trainings in HMIS was given to the hospitals in charge. The report is compared with the report of previous month and same month of previous year. This key performance indicator and benchmarking leads seamlessly into improved planning and control HOSPITAL INDICATORS & PERFORMANCE In order to strengthen evaluation and monitoring capacities. 5.

Five leading cause groups of diseases of morbidity were evaluated for each district and the recompiled for all the secondary health care institutions of Punjab thus giving a view of the most prevalent diseases in the institution . Burden of disease is the second major part of HMIS All the diseases have been properly coded on the basis of Xth revision of the ICD codes by WHO.performance of hospitals. It has helped in positive peer pressure and help hospital to work as cohesive units.