Key Performance Indicators and Balanced Scorecard

Performance management is critical to an organization’s success. The top management spends a lot of time in making sure that the company’s day to day activity is aligned with its long term goals. The facets of performance management are :
1 Alignment – The top management needs to align the business processes of a company to its long term goals.
2. The business processes needs to be bound together so that a meaningful BPM system spanning across the organization can be set up.
3. The business processes needs to be monitored in real time basis. This is part of the BAM or Business Activity Monitoring system.
Balanced scorecards and Key Performance Indicators (KPI) are tools that the management uses to monitor the performance of their business processes.

Balanced Scorecard : Balanced scorecard was made popular by Kaplan and Norton. It is a management tool that presents a holistic view of the company measures. It is a reporting tool that shows the financial and non-financial metrics of a company. It can be used for real time monitoring of the company metrics. The balanced scorecard is a single report consisting of mainly four perspectives. The idea is to monitor not only the financial but also the non financial parameters that are critical to a company’s success.
The four perspectives are shown in the diagram below.

Key Performance Indicators (KPI) – Key performance indicators are the metrics that may be the part of the balanced scorecard. KPIs are used to present actionable results across the organization. The selection of KPIs is a tricky area and can sometimes be an art. However, any KPI selected should be actionable and should be relevant . Here’s one way to select KPIs
1. List down the organizations vision and goals.
2. Prepare a strategy map that is in line with the company goals.
3. Divide the strategy map into different components (financial, non-financial etc).
4. List down business processes for each strategy.
5. List down the critical success factors (CSF) for each business process.
6. Design metrics that monitor these critical success factors on an on-demand basis.

At the end of these exercise we get a list of metrics that need to be monitored. Designing a dashboard using these metrics is the next step. The dashboard is user specific. The top management including the CEO would be interested in only four or five metrics that show the overall health of the strategy. Numbers such as return on capital employed are something that the top management is interested in.

KPIs have the following characteristics:

-> The KPI should be actionable. The management should be able to use the KPI dashboard for decision making. The employees should use the dashboard to align and modify their activities so that the activities are in line with the company goals.
-> The KPI should be mutually exclusive and collectively exhaustive – Two KPIs that give the same kind of information are redundant. Each KPI should be responsible for causing a unique action. Each KPI should try and encompass multiple Critical Factors.

In designing the reports and dashboard for the KPI use the following rules:

1. Make efficient use of graph and tables. Do not use graphs that show only trend but no numbers. Remember that the KPI needs to be actionable and a graph without number is not very useful.
2. The metrics should be on-demand. They should give the latest snapshot. The management needs today’s information and not last weeks summary. The decision to be made is ‘How to move forward?’ and not ‘How did the last week look like?’.
3. Weekly and monthly reports can be used to analyze past performance and make corrections in the strategy.
4. Use ALERTS : Each employee should be presented with critical alerts that she subscribes to. The alerts should be related directly to her job role. Let the employee see the number immediately before waiting for the end of week report. For example a sales representative should be able to see the current sales pipeline without waiting for the end of month report, by which it might be too late to get more customers.
5. Use Messages and inferences -The graphs and reports should be accompanies by comments and inferences from the management. These might be done using appropriate graph or table headers also. Each graph should have a comment that explains what action needs to be taken.

Designing an effective dashboard can help the company a lot. Before embarking on the project of designing KPI and dashboard for your company, make sure you understand the following.
1. Top management sponsorship – It is very important that you find atleast one person in the executive team that is committed and passionate about building the KPIs. A lot of departments would be involved and many people may not like the idea of ‘scorecard’. Choose a different name to make the dashboard more employee friendly.
2. Employee eduction – All employees should be trained and educated in using the KPIs. The success of the project is dependent on whether the employees take action based on the KPI.
3. Look and feel – Make the dashboard and the reports user friendly by incorporating the company theme into the reports. They should not look like ‘just another application’ but an extension of their existing tools.
4. Start with in-house tools or Microsoft excel till the dashboard gains popularity.
5. Start with a very small team. preferably 2-3 people. Select a liaison from each department that can spend some time with this team.

KPIs can be of immense help in monitoring and driving the company towards its long term goals. Used effectively, they can do wonders; But be warned, that any halfhearted implementation would only waste company time and resources.

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