A metric that helps you understand how you are doing against your objectives. High-level snapshots of a business or organization based on specific predefined measures. Should not constitute
english discussion question
In the attached file there are 4 articles; please write a paragraph with your summary notes regarding the content you have read. You can refer either to each listed material or to all the materials.
Fact sheet- KPI definitions
Allan Willie: Measurable industry, department or task relevant performance metrics that are evaluated over a specified time period, and compared against acceptable norms, past performance or targets.
Avinash Kaishik: A metric that helps you understand how you are doing against your objectives. High-level snapshots of a business or organization based on specific predefined measures. Should not constitute every company metric for analysis and evaluation. Rather, KPIs should reflect the most important objectives of the business.
Bruce Clay: Help organizations achieve organizational goals through the definition and measurement of progress. The key indicators are agreed upon by an organization and are indicators which can be measured that will reflect success factors.
European Commission: A description of the projects objectives in terms of quality, quantity, target groups, time and place.
James Oh: A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their strategic and operational goals.
John Standalof: Measurements of activity that is a vital gear in your business machine.
KAIZEN Analytics: Measures that help decision makers define and measure progress toward business goals. KPI metrics translate complex measures into a simple indicator that allows decision makers to assess the current situation and act quickly.
Shalin Shah: The data necessary to understand the implications of whatever he/she sees and the wherewithal to take appropriate action.
General comments: By analyzing these definitions it is easy to identify some common ideas used when referring to KPIs, such as: measurable / quantifiable, to meet strategic and operational goals / reflect success and they should reflect the most important objectives. However, most definitions seem vague or incomplete, meaning that they do not bring together the 3 elements identified above: measurable, achievements and importance (relevancy). Having more clarity in regards to what KPIs are, will enhance Chief Executive Officers, managers or business analysts to better deploy this tool, as its full meaning is understood.
The KPI Institutes perspective: A measurable expression for the achievement of a desired level of results in an area relevant to the evaluated entitys activity.
Fact sheet – KPIs in practice
% Net profit rate ? A profitable business is a sustainable business. It is however important to have realistic expectations. Returns of over 30% may be speculative, while in some economies returns of under 5% are lower than interest rates.
$ Revenue ? Growing revenue is an expression of having the right product/service mix, supported by the right team delivered at the right time. Converting opportunities in sales is the essence of a sustainable business.
% Profitable customers ? Getting the balance right is the basis for financial success. Although oftentimes it is difficult to track, it adds a great deal of insight and informs decision making. Activity based costing is key to getting this indicator right.
# Net Promoter Score ? Having customers that are not only satisfied, but are actively endorsing a company/product/service. Recently has become a favourite indicator of customer satisfaction, due to its simplicity and relevance.
% On-time delivery ? An operational focused KPI with wide reaching implications. It can be used in a variety of industries and functional areas, as time is an important resource to anyone. Oftentimes it acts as a bottleneck as it is influenced by many indicators and it impacts a great deal of other indicators.
% Projects on time, on budget and according to specifications ? Getting the triangle right is difficult and priorities may vary from one project to another. It is however a useful base to start from. Can be customised as per the preference of project boards and project managers to cover only specific aspect of the triangle.
% Processes optimised ? One key managerial responsibility is creating the right environment for the staff members to operate in. This includes using a management system that is well thought of and refined. Mapping and improving work processes is key to using a performance oriented architecture.
People, learning and growth perspective:
# Employee engagement index ? Some say money cant buy it. It is that extra level of commitment that is induced by motivating purposes, inspiring leaders and working environments that facilitate happiness in the professional life.
# Proposed improvement ideas per employee ? Inspired by H.W. Heinrichs work in the 1930s on the Pyramid Theory as some call it. The main results are visible at the top, but you need to monitor the base to ensure processes lead to the desired outcomes.
$ Investment in learning per employee ? Not the ideal indicator of training impact, but a widely used substitute. It monitors both training spend and the wide allocation of funds to avoid serial trainees.
Fact sheet-Terminology in practice
1. New York City Hall, USA: Indicators
2. WA Government, Australia: Key performance indicators (KPIs)
General comments: Although, the term used when refering to KPIs ca widely vary, it is important to ensure that a common language is used within the entity. The usage of Key Performance Indicators is one of the most popular terms used in practice and it can be clearly differentiated as a concept from a simple performance measure or indicator.
The KPI Institutes perspective: To keep things simple in terms of terminology, The KPI Institute recomends the usage of 3 key concepts:
Metrics – referring to something that can be measured, a value or a quantity. They can be used to monitor different processes, without desired targets to be reached.
Key Performance Indicators ? metrics that make objectives quantifiable, providing visibility into the performance of individuals, teams, departments and organizations and enabling decision makers to take action in achieving the desired outcomes.
Key Risk Indicators – metrics that provides an early warning regarding an increased risk exposure in a certain area of operations.
Fact Sheet-Performance Management related theories
Goal setting theory
Promoters: Ed Locke and Gary Latham
Goals should be challenging, but attainable;
Goals should be specific rather than vague;
Employees should be involved in the process of setting their own goal;
Goals should be measurable in terms of being clearly understood by employees: quantity, quality, time, and cost.
Directive function. They direct attention and effort toward goal-relevant activities and away from goal irrelevant activities;
Energizing function. High goals lead to greater effort than low goals;
Impact on persistence. When participants are allowed to control the time they spend on a task, hard goals prolong effort;
Affect action indirectly by leading to the arousal, discovery, and/or use of task-relevant knowledge and strategies.
The KPI Institutes perspective:
Setting targets motivates employees to perform better and keeps them focused on what matter the most for the organization. Establishing targets for the right KPIs aligns the entire personnel to the corporate strategy.
Ludwig Von Bertalanffy
A system is characterized by the interactions of its components;
A system is characterized by the nonlinearity of the interactions between its components.
Since Descartes, the “scientific method” had progressed under two related assumptions:
A system could be broken down into its individual components, so that each component could be analysed as an independent entity;
The components could be added in a linear fashion to describe the totality of the system.
The KPI Institutes perspective:
Setting objectives and analyzing KPI results must be done in context, using a system thinking approach. Only by understanding how different KPIs influence each other, or how one of more objectives from the Internal Processes perspective* contribute to the achievement of a Customer related objective, true value from KPI measurement can be generated. The decision making process must rely on system thinking, as the organization is like a living organism constantly changing and adapting to internal and external factors of influence.
3. Agency theory
Promoter: Kathleen Eisenhardt
Organizations are composed of a complex network of relationships between individuals and entities with conflicting objectives;
The divergent goals of the principal and agent raise conflicts;
Both the principal (i.e. employer) and the agent (i.e. employee) are wealth seeking economic men who pursue their own self-interest;
It is difficult or expensive for the principal to verify what the agent is actually doing;
There is an information asymmetry between the principal and agent;
Moral hazard, as the principal cant determine the effort level employed by the agent and cannot be sure if the agent has put forth maximal effort;
Adverse selection, as agents may claim their skills and experience level is higher than the actual one;
The difference between principal and agent in terms of attitude towards risk. Often the principal is assumed to be risk taker while the agent risk averse.
The KPI Institutes perspective:
In the business environment, there is one main agency dilemma between the employer and the employee. The employer wants to minimize his costs, while the employee desired to receive the highest possible remuneration for his work. Finding the balance between what both parties aim for can be facilitated by a performance contract. In this document, the employer and the employee agree upon performance standards expected and the remuneration paid for delivering work at pre-established quality parameters.
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