Measuring Contractors Performance Using KPIs GUIDANCE NOTES FOR FACILITIES MANAGERS Published by the British Institute of Facilities Management BIFM November 2014 1
Why measure performance? Jonah Lomu once said If you are not keeping score you are only practising. The purpose of this Guidance Note is to get you to start thinking about different ways to measure and score contractors performance. The main reasons for measuring performance are to: > Learn and improve > Report internally and externally > Demonstrate compliance > Provide information to help managers make better informed decisions > Comply with external reporting regulations and information requests Knowing how the contractor is performing is valuable information in its own right, but a good measurement system will also help identify the triggers for any changes in performance. These days performance measurement is often linked to service failure deductions in order to exact some form of recompense for below standard performance or act as the baseline for gain share mechanisms to reward over performance. The pro s and con s of these approaches will be the subject of a separate Guidance Note. What are Key Performance Indicators (KPIs)? In the context of a service contract KPIs can be considered: Financial and non-financial measures of a contractors performance relative to the critical success factors (CSFs) of the service. KPIs serve to reduce the complex nature of performance to a small number of key indicators in order to make it more digestible. They should be designed to track progress and gain relevant insights to help manage and improve performance. Decisions can be made much quicker when there are accurate and visible measures to back them up. A typical KPI should be SMART and have the following characteristics: > Be aligned to service delivery goals > Provide context > Create meaning at all organisational levels > Be based on clear measurable data > Be easy to understand > Lead to action 2
In many contracts the KPI s are decided by the client and the mechanisms and timescales for reporting, reviewing, and agreeing them are included in the contract documents along with the service default deduction process (if applicable), however it is not unusual for the client to ask the contractor to submit proposals for agreement. How many KPIs should I have? Whilst there is a lot of debate about this, most opinion suggests that there should be between 5 and 8 KPIs relating to a service contract, supported by an appropriate number of Performance Measures (PMs). Any more than this will create a work stream in its own right and the contractor will spend more time managing the KPIs than they do managing the service! What should I measure? There is little that cannot be measured, but it must be realised that it does not make them key to the contracts' success. Despite this some organisations take a scatter-gun approach and measure everything, irrespective of whether it relates to a CSF (Critical Success Factor) or adds any value to the management or delivery of the service. These sorts of organisations generally end up with people scratching their heads and wondering what to do with all the performance data. Resist the temptation to measure things simply because you can. You do not need to measure the irrelevant as it is a waste of time and resources. The priority is to focus on quantifiable factors that are as closely linked as possible to the service contract deliverables and those factors that define the success of the service. How do I decide what the Critical Success Factors are? The concept of "success factors" was developed in order to identify the key service delivery criteria that will decide whether it is to be regarded as successful or not. The term "critical" refers to the chance of failure if the linked deliverables and standards are not met. CSFs should not be confused with Key Performance Indicators (KPIs). CSFs are elements that are vital for the service contract to be successful and KPIs are the measureable performance criteria that determine how well the CSFs are being met. It is possible, during the term of the contract, that you decide some of the CSFs (and KPIs) are not quite right. It is therefore important to review them periodically and to define a process in the contract documents for them to be reviewed and/or amended. Targets are good servants but very bad masters and some of the CSFs and KPIs may need a bit of time to get right. Examples of the sort of CSFs, KPIs and PMs (Performance Measures) that you may consider relevant to a service contract are set out in Annex A but remember it is up to you to canvass stakeholders in order to decide what defines success and how you measure it. How do I measure the KPIs? Generally the required delivery standards will be set out in the contract documents so for the 3
service to be successful these standards must be met or exceeded. Again resist the temptation to measure against every standard, you should concentrate on those that will make or break the service if not adhered to. Best in Class External benchmarks Internal Benchmarks Measurement Methods Experience Industry Standards If there are limited and/or no clearly defined standards to measure against targets can be established in many ways by using: > Best in Class benchmarks using available data from other organisations recognised as being leading edge > External benchmarks obtained from readily available data and/or market intelligence from within the industry > Internal benchmarks comparing different business units or outlets within the same organisation > Where no other data exists, targets based upon the experience and knowledge of experts. It is important when using this method that targets are robust but achievable and that in the early days they are periodically reviewed and re-calibrated if necessary > There are many industry and legislative standards that can be used for benchmarking purposes, for example; Hygiene ratings for catering services from the local authority However you arrive at the benchmarks ensure that they are SMART: > Specific > Measurable > Achievable 4
> Realistic > Time bound When defining how high the bar should be set for red, green and amber thresholds discussed below, it is rare to expect that the service provider will achieve 100% against the performance measures you have set. It is not a perfect world and there will always be the odd failure. Neither should you expect them to make a step change in performance straight away. If historic achievement levels have been, say 65% the contractor is not likely to hit 90% in the first month of delivery, so consider having a KPI stabilisation period of 3 to 6 months during which time service delivery can be ramped up to meet the higher expectations. You might decide to set the green/amber threshold at somewhere between 90% and 97% and the amber/red threshold at somewhere between 80% and 85%, it is your decision but make sure the targets are tough but achievable. Bear in mind though that there are likely to be a small number of measures where nothing less than 100% achievement is acceptable, for example: > Compliance and Legislative Requirements > Some health and safety measures > Security breaches in sensitive facilities > Failure to attend to an emergency call out How should the KPIs be presented? It is usual for KPI results to be summarised on a regular basis (monthly or quarterly) using Balanced Scorecards and for Dash Boards to be used to monitor real time performance. These reports are often pulled together by the Helpdesk. The presentation of results can range from a simple excel spreadsheet to a sophisticated bespoke software package, which generates different visual presentations and reports. A commonly used presentation style is to distil the results into a traffic light format with RAG (Red, Amber, Green) indicators to denote poor, moderate and good performance, an example of a Balanced Scorecard is attached in Annex C. Reviewing the KPI s As the contract evolves, things may change: > Services may be added or removed > Quality standards may change either by agreement or as a result of continuous improvement > The relationship between the client and the contractor may mature > There may be a desire to refocus on other areas of service delivery To ensure that the KPIs continue to reflect the changes and remain meaningful it is important that the contractor and client review them on a regular basis and if appropriate adjust them to meet the new circumstances. 5
Annex A Typical CSFs, KPIs and PMs Typical CSFs and KPIs in a service contract might include any of the following, depending on how critical they are to the successful delivery of services, the variety of Performance Measures available to be used to measure KPIs can be extensive in some organisations so when spoilt for choice pick the ones that are most relevant to you. Below are some examples of typical CSFs, KPIs and PMs. Generally these fall into 4 areas: > Time delivery to programme > Quality of service delivery > Cost financial matters > Safety, Health, Environment, and Security requirements CSF KPI PM The service must be consistently delivered to high standards The service must be delivered at the times set out in the service specification The service delivery standards in the contract specification are being met or exceeded Service delivery times, where stated, are being met or exceeded > Inspections > Audits > Complaints > etc. In a Total FM (TFM) contract there may be several measures for each service line, but they should only measure the key standards in the contract specification > Inspections > Audits > Mystery shopping (for services such as Catering) 6
The service shall ensure a safe and stimulating environment for stakeholders The service must achieve the response requirements set out in the contract Health, safety and environmental standards are regularly monitored, reviewed and maintained in accordance with all legal and regulatory requirements No failure to meet the response times set out in the contract > Accident Incidence Reports > Number of reportable accidents > Audit non-conformances > HS & E reports > Achievement of planned environmental initiatives > Helpdesk reports on responses achieved The security integrity of the facilities are to be maintained at all times No breaches of the site security rules > Security Incident Reports > Employee notifications Contractors staff must be contactable, responsive and sensitive to occupants needs The cost of service delivery must remain within the budget The facilities must be statutory compliant at all times No failure to be able to contact a senior member of the contractors staff during the normal working day The contractor is working effectively with the Employer to maintain costs at an acceptable level The contractor has a clear programme for maintaining statutory compliance of the premises and is meeting its requirements > Client feedback > Complaints > Cost v Budget reports > Cost of variations > Measurement of innovation and continuous improvement proposals > Statutory compliance audits > Failure reports Customers must remain satisfied with the service they receive Customers are satisfied with the service > Perception survey results > Data from Service Quality questionnaires > Data from the contractors Complaints Management system > Measurement of Customer take up (e.g. 7
The contractors people must be satisfied and motivated The contractor has a clear retention and motivation policy and is adhering to it No. of meals provided is maintained or increasing) > Data from mystery shopping > Customer forums are consistently recording high levels of satisfaction > Staff retention policy is being applied > Staff turnover below the industry norm > No. of days lost through sickness > User feedback 8
Annex B An example of CSFs, KPIs and PMs CSF - Customers must remain satisfied with the service they receive KPI Customers are satisfied with the service PM's - Perception Surveys etc Perception Surveys Service Quality Questionnaires Complaints are Minimal & Managed Customers are satisfied with the service Customer Levels are Maintained Mystery Shopping Customer Forum Feedback 9
Annex C Typical Balanced Scorecard using RAG Indicators 10
This document was produced by the British Institute of Facilities Management (BIFM) alongside the BIFM Procurement Special Interest Group (SIG). BIFM would like to thank the Procurement SIG for their contribution in producing these guidance notes. Further information on the Procurement Special Interest Group (SIG) can be found at: www.bifm.org.uk/procurement About BIFM The British Institute of Facilities Management (BIFM) is the professional body for facilities management (FM). Founded in 1993, we promote excellence in facilities management for the benefit of practitioners, the economy and society. Supporting and representing over 15,000 members around the world, both individual FM professionals and organisations, and thousands more through qualifications and training. www.bifm.org.uk For further information on BIFM, please visit www.bifm.org.uk/about or email info@bifm.org.uk. Alternatively, you can call +44(0)1279 712 620. Twitter: @BIFM_UK *While all due care is taken in writing and producing this guidance note, BIFM does not accept any liability for the accuracy of the contents or any opinions expressed herein. 11