Key Performance Indicators

Key Performance IndicatorsKey Performance Indicators

Agenda for the sessionAgenda for the session
 What are Key Performance IndicatorsWhat are Key Performance Indicators
 Why are KPIs importantWhy are KPIs important
 KPIs: A Balanced ScorecardKPIs: A Balanced Scorecard
 How to implement KPIsHow to implement KPIs
 Sample KPI Measurements andSample KPI Measurements and

What are KPIWhat are KPI’s?’s?
“Quantifiable measurements that reflect
critical success factors of a business.”
• Key Drivers
• A handful of numbers “at a glance
view”
finger on the pulse
hot spots
act quickly!

Why are KPIs important?Why are KPIs important?
Owners…Owners…
 are overwhelmed and distracted withare overwhelmed and distracted with
day to day activities and tasksday to day activities and tasks
 concentrate on the tactical decisionsconcentrate on the tactical decisions
and neglect the strategic onesand neglect the strategic ones
 must make important decisions, quickly,must make important decisions, quickly,
with greater consequences, and oftenwith greater consequences, and often
with limited information on handwith limited information on hand

The DashboardThe Dashboard
TurnoverResources
Overdraft
Debtors
Days
Testing &
Measuring

KPIs must be Strategic: How doKPIs must be Strategic: How do
we differentiate from thewe differentiate from the
competitioncompetition
 Define the market to be servedDefine the market to be served
 Define the customerDefine the customer
 Define the critical internal processesDefine the critical internal processes
needed to capture and satisfyneeded to capture and satisfy
customerscustomers
 What individual and organizationalWhat individual and organizational

KPIs: Four Strategic PerspectivesKPIs: Four Strategic Perspectives
 CustomerCustomer
 Marketing and SalesMarketing and Sales
 Internal Business ProcessesInternal Business Processes
 OperationsOperations
 SuppliersSuppliers
 FinancialFinancial
 ResourcesResources
 Vision and LeadershipVision and Leadership

Input versus Output:BalancedInput versus Output:Balanced
ScorecardScorecard
FINANCIAL
CUSTOMERS BUSINESS
SYSTEMS
RESOURCES
Plant and Equipment,
Working Capital;
Employee Satisfaction;
Knowledge and Skills
Costs; Timeliness; Rework
%; Returns
Net Profit, Turnover, etc.
Client Survey,
Customers Service,
Client Retention %,
Percentage of referring
Clients etc.

KPIs should look like a Balanced ScorecardKPIs should look like a Balanced Scorecard

KPIs should focus on a single strategyKPIs should focus on a single strategy
 Linked to the strategyLinked to the strategy
 ConsistentConsistent
 Mutually reinforcingMutually reinforcing

Some Generic KPI MeasuresSome Generic KPI Measures
FinancialFinancial Return on Capital; CashReturn on Capital; Cash
Flow; Revenue; ProfitFlow; Revenue; Profit
CustomerCustomer Customer Satisfaction;Customer Satisfaction;
Customer Retention; marketCustomer Retention; market
shareshare
Internal Business ProcessInternal Business Process Quality; timeliness; costs;Quality; timeliness; costs;
returns; reworkreturns; rework
Learning and GrowthLearning and Growth Employee Retention;Employee Retention;
Employee Satisfaction;Employee Satisfaction;
Employee KnowledgeEmployee Knowledge

The Cycle Of BusinessThe Cycle Of Business

Cause and Effect: The BalancedCause and Effect: The Balanced
ScorecardScorecard

KPIs: Four Types ofKPIs: Four Types of
MeasuresMeasures
 Short and Long TermShort and Long Term
 Internal (business processes) andInternal (business processes) and
External (shareholders,customers)External (shareholders,customers)
 Leading and LaggingLeading and Lagging
 Objective (financial) and SubjectiveObjective (financial) and Subjective
(non-financial)(non-financial)

How should KPIs be used?How should KPIs be used?
 CommunicationCommunication
 InformingInforming
 DiagnosticDiagnostic
 LearningLearning
 NOT controllingNOT controlling

Diagnostic versus StrategicDiagnostic versus Strategic
 Diagnostic measurements:Diagnostic measurements: monitormonitor
whether something is in control.whether something is in control.
 Strategic measurements:Strategic measurements: define adefine a
strategy for competitive excellence andstrategy for competitive excellence and
future successfuture success
A Balanced Scorecard is aA Balanced Scorecard is a
strategic measurement system.strategic measurement system.

Sample Balanced ScorecardSample Balanced Scorecard
PerspectivePerspective GoalsGoals Drivers (How)Drivers (How) MeasurementsMeasurements
(KPI(KPI’s)’s)
CustomerCustomer Improve customerImprove customer
satisfactionsatisfaction
Decrease lead timeDecrease lead time
Deliver on timeDeliver on time
Reduce complaintsReduce complaints
Average Lead TimeAverage Lead Time
% deliveries on time% deliveries on time
Number of ComplaintsNumber of Complaints
Internal BusinessInternal Business Continuously improveContinuously improve
business processesbusiness processes
Decrease Cycle TimeDecrease Cycle Time
Increase QualityIncrease Quality
Increase ProductivityIncrease Productivity
Average Cycle TimeAverage Cycle Time
# of Defects; % Rework# of Defects; % Rework
Output per employeeOutput per employee
FinancialFinancial Continuously ImproveContinuously Improve
Financial PerformanceFinancial Performance
Decrease CostsDecrease Costs
Increase Sales growthIncrease Sales growth
Increase Market ShareIncrease Market Share
Increase ROIIncrease ROI
Average Unit costsAverage Unit costs
Growth Rate in SalesGrowth Rate in Sales
Market ShareMarket Share
ROIROI
Innovation and LearningInnovation and Learning Deliver new Products andDeliver new Products and
ServicesServices
Increase sales of newIncrease sales of new
products and servicesproducts and services
Reduce development timeReduce development time
% of sales from new% of sales from new
Time from design toTime from design to
implementationimplementation

KPIs: The Big PictureKPIs: The Big Picture

Marketing Sales Stake-
holders
Operations
Production
Suppliers
Finance
and Admin
Human
Resources
Innovation
and
Learning
Clients
Team
Share-
holders
Attract and retain clients
Build and maintain client relationships and loyalty
Provide services that satisfy client’s needs and lifestyle objectives
Provision of secure employment
Provision of enjoyable happy work environment, that’s aligned with corporate values
Provide career and professional development opportunities
Provide succession and exit plan for existing shareholders
Provide capital growth in asset and return on investment through dividend streams

How to implement KPIsHow to implement KPIs
Step 1: Define Strategic SpecificsStep 1: Define Strategic Specifics
 Define Your StrategyDefine Your Strategy
 Vision, Mission, Culture and Values reflectVision, Mission, Culture and Values reflect
strategystrategy
 Set GoalsSet Goals
 Most important business objectives (e.g. improveMost important business objectives (e.g. improve
customer satisfaction)customer satisfaction)
 WhatWhat “drivers” are critical to success (e.g.“drivers” are critical to success (e.g.
decrease lead time)decrease lead time)
 What impactsWhat impacts “driver”“driver” results (leadership, training,results (leadership, training,
systems)systems)

Step 1: Define Strategic SpecificsStep 1: Define Strategic Specifics
(Cont)(Cont)
 Clarify the strategyClarify the strategy
 Align Team members on strategicAlign Team members on strategic
issuesissues
 Identify BarriersIdentify Barriers

Step 2: Audit Existing MeasuresStep 2: Audit Existing Measures
 Assess strategic fitAssess strategic fit
 Identify what data is availableIdentify what data is available
 Review Measurement ProcessesReview Measurement Processes
 AccuracyAccuracy
 TimelinessTimeliness
 Identify GapsIdentify Gaps

Step 3: Develop New MeasuresStep 3: Develop New Measures
 Bridge the gaps, examples of strategicBridge the gaps, examples of strategic
data often missing:data often missing:
 Employee Satisfaction SurveyEmployee Satisfaction Survey
 Customer Satisfaction SurveyCustomer Satisfaction Survey
 Rework %Rework %
 On-time Delivery %On-time Delivery %

 Measures must reflect performance and progressMeasures must reflect performance and progress
of the businessof the business
 Must be quantifiableMust be quantifiable
 Must be compared to another numberMust be compared to another number
 last yearlast year
 budget/goalbudget/goal
 trendtrend
 Can be acted uponCan be acted upon

 KPI title:KPI title: Employee TurnoverEmployee Turnover
 Defined:Defined: number of employees who resign ornumber of employees who resign or
are terminated for any reason divided by theare terminated for any reason divided by the
number of employees at the beginning of thenumber of employees at the beginning of the
year. Reductions in force excludedyear. Reductions in force excluded
 Measured:Measured: Payroll termination report byPayroll termination report by
reasonreason
 Goal:Goal: Reduce turnover by 10% (from 16.6% toReduce turnover by 10% (from 16.6% to
15%); FY 2012 objective is to achieve an15%); FY 2012 objective is to achieve an

Step 4: Analyze and ReportStep 4: Analyze and Report
 Easy to ReadEasy to Read
 One Page SummaryOne Page Summary
 GraphsGraphs

Sample KPI ReportSample KPI Report
TemplateTemplateKPI Template Curr Mth Sam e M LY Comparison % Sales Budget Mth YTD Actual %Sales YTD LY Act % Sales Com parison Budget YTD
Sales 1
Sales 2
Sales 3
Total Sales
Cost 1
Cost 2
Cost 3
Total COGS
Gross Profit
Gross Margin
Sales & Mktg.
Adm nin.
Other 1
Other 2
Facilities
Total costs
EBITDA(Op.Inc)
Op. Margin
Interest/Dep/Amort
Net Profit
FTE 1
FTE 2
FTE Total
Inventory
Inventory Turover
Back Orders
Accts Rec
Av Coll. Days
Quality Meas.1
Quality Meas.2
Production Meas. 1
Production Meas.2
New Customers
Total Customers
Forecast this month F 30 out F 60 out F 90 out F 120 out F 150 out
Work in Progress
Projects Status Project 1 Mgr. Project 2 Mgr. Project 3 Mgr. Project 4 Mgr. Project 5 Mgr.
Budget and Delivery

Sample KPI Trend ReportSample KPI Trend Report

Sample Trend ReportSample Trend Report

Step 5: Continuous ImprovementStep 5: Continuous Improvement
 Strategy based on set prioritiesStrategy based on set priorities
 SMART GoalsSMART Goals
 Assign AccountabilityAssign Accountability
 Track ImprovementTrack Improvement
 Set New GoalsSet New Goals

WorkshopWorkshop
 Review your companyReview your company ’’s Vision ands Vision and
MissionMission
 Write down the areas in your businessWrite down the areas in your business
that require KPIthat require KPI ’’ss

PerspectivePerspective
CustomerCustomer
Internal BusinessInternal Business
FinancialFinancial
Innovation and LearningInnovation and Learning

PerspectivePerspective GoalsGoals
ServicesServices

PerspectivePerspective GoalsGoals Drivers (How)Drivers (How)
Decrease lead timeDecrease lead time
Deliver on timeDeliver on time
Reduce complaintsReduce complaints
Decrease Cycle TimeDecrease Cycle Time
Increase QualityIncrease Quality
Increase ProductivityIncrease Productivity
Decrease CostsDecrease Costs
Increase Sales growthIncrease Sales growth
Increase Market ShareIncrease Market Share
Increase ROIIncrease ROI
ServicesServices
Increase sales of newIncrease sales of new
Reduce development timeReduce development time

Sample KPI Measures:Sample KPI Measures:
Marketing and SalesMarketing and Sales
 Market ShareMarket Share
 Leads by SourceLeads by Source
 Number of ProspectsNumber of Prospects
 Conversion RatioConversion Ratio
 Average Dollar SaleAverage Dollar Sale
 Profit Per CustomerProfit Per Customer
 Sales by Product LineSales by Product Line
 Number ofNumber of
Transactions/CustomerTransactions/Customer
 Customer SatisfactionCustomer Satisfaction

Marketing and SalesMarketing and Sales
 Number of newNumber of new
customerscustomers
 Brand AwarenessBrand Awareness
 Value of BrandValue of Brand
CustomersCustomers
 ReferralsReferrals
 Sales MixSales Mix
 CustomerCustomer
ProfitabilityProfitability
 Number of OrdersNumber of Orders
 Customer RetentionCustomer Retention
 Reasons for lossesReasons for losses
 Lifetime Value of aLifetime Value of a

Sample KPI Measure:Sample KPI Measure:
FinancialFinancial
 DividendsDividends
 Current RatioCurrent Ratio
 Quick RatioQuick Ratio
 Credit ratingCredit rating
 Days Sales OutstandingDays Sales Outstanding
 RevenueRevenue
 Profit MarginProfit Margin
 Gross marginGross margin
 Revenue/Expense RatioRevenue/Expense Ratio
 Variable vs non-variableVariable vs non-variable
expensesexpenses
 Return on InvestmentReturn on Investment

FinancialFinancial
 Cash in BankCash in Bank
 Retained EarningsRetained Earnings
 Cost of Goods SoldCost of Goods Sold
 Inventory Turns/YearInventory Turns/Year
 Cash FlowCash Flow
 Return on CapitalReturn on Capital
 Bank OverdraftBank Overdraft
 InventoryInventory
 Aged AccountsAged Accounts
ReceivableReceivable
 Aged Accounts PayableAged Accounts Payable
 Sales Per Square FootSales Per Square Foot
 EBITEBIT
 Capital ExpendituresCapital Expenditures
 Debt to Equity RatioDebt to Equity Ratio

FinancialFinancial
 R&D ExpendituresR&D Expenditures
 TrainingTraining
ExpendituresExpenditures
 MarketingMarketing
 DepreciationDepreciation
 Fixed AssetsFixed Assets
 Current LiabilitiesCurrent Liabilities
 Interest ExpenseInterest Expense
 Bad DebtsBad Debts
 DiscountsDiscounts
Given/TakenGiven/Taken

Operations/ProductionOperations/Production
 Quality DataQuality Data
 TimelinessTimeliness
 Response TimeResponse Time
 Re-work (#,%)Re-work (#,%)
 Cost per unitCost per unit
EmployeesEmployees
 Capacity UtilizationCapacity Utilization
 SafetySafety
 # Workers Comp# Workers Comp
ClaimsClaims
 Days lostDays lost
 EnvironmentalEnvironmental
 Back ordersBack orders

Operations/ProductionOperations/Production
 Post Sales ServicePost Sales Service
 Warranty Claims (#,%)Warranty Claims (#,%)
 RepairsRepairs
 ReturnsReturns
 DefectsDefects
 Number of ComplaintsNumber of Complaints
 Value of Customer ComplaintsValue of Customer Complaints
 # orders failed before delivery# orders failed before delivery
 # Orders not delivered on# Orders not delivered on
timetime
 Work in ProcessWork in Process
 Labour HoursLabour Hours
 OvertimeOvertime
 Cycle TimeCycle Time
 DowntimeDowntime
 Maintenance CostsMaintenance Costs

PeoplePeople
 Employee TurnoverEmployee Turnover
 EmployeeEmployee
SatisfactionSatisfaction
 Output per employeeOutput per employee
 Sales per employeeSales per employee
 Productivity perProductivity per
employeeemployee
 Quality of OutputsQuality of Outputs
 Drivers of PerformanceDrivers of Performance
 Drivers of CapabilitiesDrivers of Capabilities
 LearningLearning
 Skills mixSkills mix
 Core ValuesCore Values
 Customer focusCustomer focus
 InnovationInnovation

PeoplePeople
EmployeesEmployees
 # of managers# of managers
 Manager/employeeManager/employee
ratioratio
 AbsenteeismAbsenteeism
 # new employees# new employees
 Hours or $ ofHours or $ of
training pertraining per
employeeemployee
 Ratio direct toRatio direct to
overhead employeesoverhead employees
 Cost per new hireCost per new hire
 % employees fully% employees fully
trainedtrained

InnovationInnovation
 Revenue from new productsRevenue from new products
 Revenue from new market segmentsRevenue from new market segments
 Revenue from new geographyRevenue from new geography
 Number of new customersNumber of new customers
 Time to market for new products/serviceTime to market for new products/service
 R&D expenseR&D expense

SuppliersSuppliers
Satisfaction with SuppliersSatisfaction with Suppliers
 ResponsivenessResponsiveness
 Costs compared withCosts compared with
competitioncompetition
 On-time DeliveryOn-time Delivery
 Overall Satisfaction/ValueOverall Satisfaction/Value
 Defects (#,%)Defects (#,%)
 Credit termsCredit terms
 Number of Suppliers
Supplier SatisfactionSupplier Satisfaction
 Overall Satisfaction:Overall Satisfaction:
Opportunity for profitsOpportunity for profits
while providing qualitywhile providing quality
 ResponsivenessResponsiveness
 PaymentPayment

The Top Ten Drivers ofThe Top Ten Drivers of
Business Performance*Business Performance*
 Low levels of lateLow levels of late
deliveries to customersdeliveries to customers
 Higher employeeHigher employee
training expendituretraining expenditure
 % of workforce trained% of workforce trained
 Low absenteeism rateLow absenteeism rate
 Higher MarketingHigher Marketing
 Higher CapitalHigher Capital
 Higher R&D ExpenditureHigher R&D Expenditure
 Higher Stock TurnsHigher Stock Turns
 Higher Cash BalancesHigher Cash Balances
 Lower Debt Levels (moreLower Debt Levels (more
short term than longshort term than long
term)term)

Four Things Every OwnerFour Things Every Owner
Should KnowShould Know
 The profitability of the businessThe profitability of the business
depends on how well the employeesdepends on how well the employees
consistently perform critical activities.consistently perform critical activities.
 Employees perform best when theyEmployees perform best when they
understand how their performanceunderstand how their performance
affects the bottom line, and how theiraffects the bottom line, and how their
performance is measuredperformance is measured ..

Four Things Every OwnerFour Things Every Owner
Should KnowShould Know
 Small changes in critical areas canSmall changes in critical areas can
have a great impact on the bottom line.have a great impact on the bottom line.
 What gets measured gets done, andWhat gets measured gets done, and
what gets rewarded gets done again.what gets rewarded gets done again.

Key Performance Indicators

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