KPI: From business concept to visualization 1
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KPI Development Two essential steps! What Systems for operating figures e. g.: ROI (Dupont-System) Balanced Score Card Process-centred approach! How Which are the basic classes of operating figure? How can I derive and structure operating figures? How can I present the operating figures adequately? 4
Das DuPont-System... ROI = Sales Earnings% * Turnover Source: The DuPont ROI Model; A History Lesson in Return on Investment; Fred Nickols 2012 Calculation: On the basis of financial accounting and cost accounting Enhancements and variations available. 5
DuPont System plus/minus Advantages In case of existing cost accounting: Evaluation can be done with relative little effort from the data of cost accounting and financial accounting (company as a whole + company parts (profit centre)) Good indicator regarding profitability, important for the top level management, shareholder, bank Formally closed, hierarchical system In relation simple definition and derivation (pre-configured) Disadvantages Neglects all other targets, e.g. liquidity Very limited support of company management & controlling (no hierarchy of targets, no objective targets, it is only an arithmetical relation but no cause-effect-relation) Results quickly in abstract goal trees Only suitable for the top level management 6
The Balanced Scorecard Management system for the alignment of the organization to strategic targets : The financial perspective shows, if the strategy pursued leads to an increasement of the company s results Exemplary key figures: profit, liquidity Finance Customer The customer perspective reflects the strategic targets of a company with regard to the customer- and market segments. Exemplary key figure: Customers satisfaction, e.g. Net Promoter Score Considering employees training and motivation are leading tools for the target achievement as well as the implementation of the strategy and process optimization Exemplary key figure: Number of certifications per year Employees Strategy Internal Processes The internal processes required for the achievement of the strategic targets are measured. Exemplary key figure: delivery time Based upon: Balanced Scorecard. Strategien erfolgreich umsetzen, Robert S. Kaplan, David P. Norton, Schäffer-Poeschel Verlag (September 1, 1997) 7
Example of a Scorecard Perspective Target Key figure Target value Action Financial Customer Increase in turnover Improvement of customer satisfaction and customer loyality Turnover 27% increase Several promotion activities Customer satisfaction (based upon survey) > 90% Improvement: Service quality Product quality Guarantee Processes Acceleration of delivery time Delivery time < 3 days Better SLA s with suppliers Employees Improvement of training Number of certifications per employee per year 2-4 Regular trainings 8
Balanced Scorecard plus/minus Advantages Integral control of the company (all sections, all management levels) All key figures can be influenced and are related to the company success The Balanced Scorecard serves as a means of communication and support, furthermore it stimulates learning processes Flexible adaption of the strategy by permanent data analysis Consideration of future aspects with regard to target values and targets to be achieved Besides traditional financial key figures further perspectives are reflected, such as processes and Soft Facts (e.g. processes don t work without satisfied and motivated employees) Orientation towards sustainability Disadvantages Labour-intensive derivation of the KPI s: vision strategies targets KPI s measures Labour-intensive derivation of key figures from management level to specialists level The time consuming involvement of the management is often judged to be a KO criteria Laborious finding processes, often in connection with a strong political factor Key figures are in some cases difficult to measure. Perhaps no relation to the processes to be steered. Complex reporting processes /automation Strong relations to managers lead to problems in case of changes, re-organization etc. 9
Process oriented approach Identify those core processes being most important for company success (e.g. sales). Define the critical measuring points for each process (KPI s) Core processes Planning Measurement Key figures On the basis of experiences fix optimal planning values (Benchmarking). Take optimal functioning processes in your company, e.g. your top product or use benchmarking figures available for your market. Savings/ improvement Controlling Analysis Dashboard / Reporting Integrate the measuring points (KPI s)and planning figures into a dashboard. 10
Process oriented approach plus/minus Advantages Similar to Balanced Scorecard Integral control of the companies processes is possible (all sections, all management levels, financilal key figures excepted) All key figures can be influenced and are (at least indirectly) related to the company success KPI s serve as a means of communication and support, furthermore it stimulates learning processes Optimization by permanent data analysis Consideration of future aspects in terms of target values and targets to be achieved Besides the traditional financial key figures further perspectives are evaluated, such as processes, sales, production Focusing on and starting with critical processes guarantees a remarkable added value and company support Easier definition of KPI s on existing process know how. Time-reduced involvement of management level, because definition can be done by process specialists Pragmatic and objective KPI definition due to alignment to company realities. Clearer operationalization /automation Disadvantages (in comparison to BSC) The strategy development and implementation is not supported in the same quality, consistency and probable innovative force in comparison to BSC Additional financial key figures regarding profit and liquidity are necessary (can be realized easily because normally cost accounting and financial accounting exist). If necessary, adaptation in case of process changes is required. 11
Definition of key figures / meta data / storage Criteria for success: precise definition, documentation and approval Leads to transparency, clarity and acceptance What has to be documented? Precise rules how KPI is determined and calculated, data sources A KPI-Owner must be established (responsible for the KPI) Approval process Dimensions Where can documentation/meta data be stored? System for meta data (repository), reporting portal, KPI-Wiki Easy access for end user Implementation best practices Calculation and storage in datamarts Dynamic Calculation in the meta data section of the reporting platform Datamart-Layer in the company DWH Support by rule engine 12
Example KPI-Catalogue (extract) Approval Approval remark Description / Determination rules Dimensions of the figure Business name Logical name Description 13
Example the Speed Copy GmbH The Speed Copy GmbH produces and sales copiers and multi functional devices. The company works Europe-wide and sales its products in Germany, Austria and Switzerland.. Sales-Process Contacts to potential customers are generated by web marketing Contacts are qualified by phone contacts are qualified into leads Qualified leads will be processed by direct sales activities Leads turn into receipt of order Annual target In 2012, the Speed Copy GmbH wants to optimize its sales in order to achieve the objectives fixed by management. 14
Example: Sales Process and KPI s Number of current and target contacts per month Target accomplishment YTD Forecast- and target value in per country or employee Target accomplishment in % per country, product and employee Monthly change in value of the forecast in per country or employee Gain contacts Lead generation Number of current and target leads per month Target accomplishment YTD Forecast- and target value in per country or employee Target accomplishment in % per country, product and employee Monthly change in value of the forecast in per country or employee Number of current and target incoming orders per month Target accomplishment YTD Current and target value in per country or employee Target accomplishment in % per country, product and employee Monthly change in value in per country or employee Order receipt Frequency: daily measurement but monthly values Classification/dimensions: Time, product line product, country region 15
KPI-Development - How? Absolute measurement Definition An absolute measurement is a simple figure resp. a number. Example Number of contacts = 400 Receipt of orders January = 1.500.000 Target accomplishment in % Definition The target accomplishment in % refers to the share of the nominal value already accomplished, i.e. it expresses the accomplished share of the target.. Formula: Current / Target * 100 Example: Current = 400, Target= 450 Target accomplishment in % = 88,88% Target/current Period of time / YTD / Piece, quantity / YTE Absolut / Forecast monetary value Frequency: Daily, weekly, monthly Change of value absolute and in % Definition Difference between the new and the former value of a key figure. Formula: - Abs. change of value: - Change of value in %: Example Old=350 New= 400 Abs. change of value = 50 Change of value in %=14,29% Structure/dimensions: Time, product, product group, organization 16
Design rules for a dashboard (continued) 1. Top Down Design 7. Details in subdashboards 5. Offer suitable filters 2. Standardized presentation 4. Avoid overloading 6. Symetric structure 3. Suitable visualization 17
Design rules for a dashboard (continued) 7. Details in subdashboards 8. Meaningful selection of dimensions 10. Offer drilldown and drillthrough! 9. Detailed tables in sub-dashboards 18
Design rules for a dashboard 1. Top-Down-Design A dashboard for key figures should be designed top-down, i.e. there should be an access page which is for the management. It shows with one view the trend and the current status. E.g. speedometers are suitable to show YTD target accomplishment. 2. Standardized presentation In our example a standardized presentation for contacts, leads and order receipt was chosen. A standardized presentation of key figures is more user-friendly as the eye must not re-adapt after having familiarized with a certain presentation.. 3. Suitable visualization Typically certain visualizations are most suitable for each KPI. Bar charts with a time row can be used for the absolute figures and metres for the visualization of the target accomplishment. 4. Avoid overloading Overloading should be avoided. In our example not more than 3 KPIs are shown, details are shown in subdashboards. 5. Offer suitable filters It is very important to offer relevant filters. In our example the following dimensions can be filtered: country, region, time, product line, product and employee. 19
Design rules for a dashboard (continued) 6. Symetric construction A homogenous placement of graphics is recommended to avoid orientation problems of the eye. 7. Detailling in sub-dashboards In our example besides the overview-dashboard three sub-dashboards were desgnid: forecast valuecontacts, forecast value-leads and value order receipt. The structuring in further dashboards can be done thematically (e.g. sales channel), in accordance with measurement points (contacts, leads, incoming orders) or e.g.management structure. 8. Intelligent selection of the dimensions in sub-dashboards The aim is to get an extensive overview of the area to be analysed without analysing all details. This means that e.g. in the sub-dashboard regarding contacts only key figures regarding contacts are shown. Value changes are only shown per country and employee in time row charts because country and employees are the main dimensions. Preferably a KPI dashboard should be designed so that it fits to a single screen. 9. Detailed tables in sub-dashboards It is recommended to show the detail data sets beyond a chart, as done e.g. in the table Detailled forecast overview YTD per region and product contacts. 10. Offer drilldown and drillthrough! Drilldown and drillthrough are both functionalities which allow the view of data sets in different dimensions both aggregated and in detail. For this, only the plus-symbol in the referred row has to be clicked. 20
The worst faults in design The limits of the visible size are exceeded Inadequate context Too many details Insufficient measures Unsuitable form of presentation Excessive variety in the presentation Badly designed charts/diagrams Unspecific description of quantitative data Bad arrangement Important information is not or less outligned. Useless decoration Too much or too little colour Worse presentation Source: Information Dashboard Design: The Effective Visual Communication of Data, Stephen Few, O'Reilly Media; 1 edition (January 1, 2006) 21
The rules of success by Prof.Dr. Hichert S ay Deliver messages U nify C ondense C heck E nable S implify S tructure Standardize content Concentrate information Ensure quality Implement concept Avoid complication Group content Focus: Unify Standardize content The following elements can be standardized: Reports, presentations, tables, charts Measures, dimensions, analysis, Data rows, chart axis, descriptions etc., Language, e.g. sentences, terminology, letters. Source: Rolf Hichert, Prof. Dr., http://www.hichert.com/de/success, http://www.hichert.com/de/success/unify 22
Examples for charts Source: Rolf Hichert, Prof. Dr.: http://www.hichert.com/de/consulting/managementberichte/diagramme 23
KPI: The 6 common traps part 1 1. Wrong selection of KPIs Only based on business theory without consideration of company processes and systems a) Too many KPIs effort b) Raise of wrong expectations c) The company priorities are not considered Tip : - Focus on present company priorities - Inclusion in a framework concept (e.g. on the basis of BSC) - Question projects with more than 20 KPI s 2. Problems in defining KPIs On the one hand, KPI s have to orientate on economic controlling requirements, on the other hand, the key figures have to be broken down to the processes lived in the company. 3. Wrong task allocation IT and department KPI projects are extremely specialized and therefore should be supported and pushed by the business department. A good proceeding is when that the business department defines and processes the KPI and the IT provides the basic data. 24
KPI: The 6 common traps part 2 4. Selection of a analysis software that is not flexible - Does it support a useful task segregation? - Is it possible to adapt new data sources /KPIs without a new IT project? - Is the end user capable to create, adapt and publish easily and intuitively? - Does it support Mobile? 5. Missing integration of the management and acceptance Evean a good KPI reporting will not succeed on a long term, if the managing board, boards members or other management levels do not use the newly created tools in their daily work e.g.: - Old reports with a similar content are created and used in parallel. - Discussions regarding target accomplishment and operative controlling do not base on the new KPI system. - The old and the new KPIs are permanently compared. Tip: - Demand the participation of all relevant management levels and their commitment (definition and KPI) - Plan right at the beginning which old reports will be shut down. - Integrate competing KPI suppliers in the project 6. Data quality (very complex subject which can only be outlined) - Evaluate the quality of data sources and analyze them (completeness/faults) first - Plan an intense validation phase - Already plan the check of key figures during definition - Ensure that detail reports are available (deviation analysis) 25
Summary Process oriented approach Add a financial view on the basis of relevant financial key figures (DB 1..x, DuPont, liquidity, ) The BSC thought can be completed by the integral selection of processes Start with critical core processes (to gain a high value add) Focus on the selection of good KPIs and definition, and limit the scope to a manageable number of KPIs Consider dashboard design rules Use a flexible software platform which is also suitable for quick dashboard creation Avoid typical project traps 26
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