Chapter 8 Measures, Metrics, KPIs, and Performance Management

Chapter 8 Measures, Metrics, KPIs, and Performance Management

Learning Objectives and Learning Outcomes Learning Objectives Measures, Metrics, KPIs and Performance Management 1. To introduce terminology associated with measurement 2. Need for a system of measurement 3. Characteristics of measures 4. Process used for defining good measures 5. Relationship of these measures to individuals/ teams/departments and the entire company Learning Outcomes (a) Ability to explain the role of Metrics in the Business/Functions performance management and decision making (b) Ability to identify Metrics and Indicators in a given business scenario (c) Ability to model a business scenario, identify the metrics, indicators and make recommendations to achieve the business goal

Session Plan Lecture time Q/A : 90 minutes approx. : 15 minutes

Agenda Measurement system terminology Salient attributes of a good metric SMART test for ensuring metric relevance to business Supply chain associated with the metric Fact-based decision making and KPIs Few sample KPIs used by Human Resource (HR) division Mapping metrics to business phases

Measurement System Terminology Data It is a collection of facts which have similar attributes or characteristics. Phone number is a named collection of, say, mobile phone numbers of your friends. Measure Data with associated unit of measure (UOM) is typically termed as measure. Lab hours per month has a numeric data associated with time duration. Metric It is a system of measures based on standard UOM with a business context. The term business metric also refers to the same.. Product defect rate by city is an example of measuring what percentage of goods was returned by customers in different cities. Indicator It is a business metric used to track business results or success/performance. Call drop frequency for mobile phone users is an indicator of user dissatisfaction. Index It consists of a composite set of indicators used to address the overall health of business operations. Customer satisfaction index measured on a scale of 1 to 5.

Measurement System Terminology A metric data when properly defined includes four components: Subject This measure is about a customer, a product, a supplier, an employee, etc. Quantum It is the value of the measure, such as cost, frequency, duration, amount, etc. Stratum It is the grouping consideration expressed like By Location, By Quarter, By Customer, etc. Application Value compared with similar measurements like previous month, forecast, target, etc.

Few Salient Attributes of a Good Metric Metric Attribute Remarks Example Name Metric should be assigned a simple, easyto-remember name. Do not include codes, long words, and unit of measure. 1. elearning Training Days 2. Average Lines of Code Abbreviation Short form used inside the organization. etd/ ALOC in above cases. Description Provide explanation to help users understand more contexts and comprehend the metric unambiguously. elearning Days Total number of full-time days equivalent spent in training using online course delivery system. Users may log-in any number of times and duration of each session is captured in minutes. Unit of Measure (For data capture) Scale The commonly measured base unit needs to be included. Commonly reported granularity of unit of measure. We need to capture the conversion formula. Simple multiples like 1000 (K) or M (Million) are commonly used. In the elearning example, the unit is Minutes. In the elearning example as the data storage granularity is Days, the scale is minutes/(60 * 8) assuming 8 hours is a standard training day. Metric Owner Position/department responsible and accountable for the metric The training support manager in the training department could be an owner.

SMART Test for Ensuring Metric Relevance to Business Test Specific Measurable Attainable Resultoriented Time-bound Test Focus Metric is clearly defined, articulated, and understood by all stakeholders, and is triggering action. Someone in the organization must have the ability/instrumentation to accurately, easily and regularly measure the actual value at reasonable cost and technology. Think if a clinical thermometer would cost USD 1000!! There will be no metric without target. This target may be stretched but must be attainable with the current level of people efforts and processes. Speed by cycle can t be enhanced to 300 kmph no matter whatever be the technology used! The metric must motivate team members performing the work. In businesses results are crucial. All actual values of metrics should be traceable to the date/time when the actual value measurement was taken. The instrument used for measurement also has a key role in sampling, accuracy, speed and correctness that can be verified in other ways.

Supply Chain Associated with Metrics Component of Measurement Supply Chain Contribution Entities to be measured Instrumentation Raw material Sub-assemblies Product Metrics Delivery Includes employee, vendor, product, customer, asset, expense category, sales promotion, service feedback Measurement data, data capture and storage in raw form Reference data, definitions, benchmarks, limits Measures with unit, format, storage structure, archives Business metrics approved, communicated and measured, verified and analyzed with rigor Reports, dashboards, scoreboards, alerts, Flash updates

Supply Chain Associated with Metrics Component of Measurement Supply Chain Contribution Business Activity Areas (Decisions/Actions) Business Application Plan review, tracking project progress, sales campaign analysis, profit forecast Budget control, quality improvement, innovation projects Business Value Business results meeting and exceeding plan

Fact Based Decision Making and KPIs KPIs are objective, measurable attributes of business performance, which assist in informed decision-making. KPIs should be: Relevance and functionality The KPIs chosen should be directly related to business results that the company is trying to produce in the specific business function. Like, your body temperature measurement can only indicate whether you have fever or not, but can say nothing about your blood pressure! Understandable Chosen KPIs must be defined unambiguously. A KPI needs to be understood in one and only one way by all stakeholders. It must be documented, and its definition must be easily accessible to all users. Reliability and Credibility The value of KPIs needs to be authentic and should be validated as trusted or dependable. Someone is going to base an important decision on the chosen metric. Adequate checks are needed to declare data as trustworthy. This also means that the data must represent the single version of truth. Abuse-proof An abuse-proof measure is unlikely to be used against intended purpose or individual(s) involved in the measurement process.

Few Sample KPIs Used by the Human Resources Division Average time to recruit. Average open time of job positions. No. of responses to open job positions. No. of interviews to fill up open job positions. No. of offers that were made. No. of responses to the offers made. % of vacancies that were filled within x time. % of new employees that remained after x time. % of new employee satisfaction rate.

Answer a Quick Question How would you aggregate KPIs for selecting sports teams for tournaments at college, state, regional, national and international levels?

Answer a Quick Question You are the owner of a retail chain. You wish to enhance the productivity of your store s employees. What metrics will you define to achieve this objective?

Mapping Metrics to Business Phases

Summary please Ask a few participants of the learning program to summarize the lecture.