Key Performance Indicators (KPI’s)

Some people say you should measure everything and that what gets measured gets managed. While it is true that if you measure something you are more likely to manage it, if you try to measure everything you run the risk of data fatigue (there is just too much of it). This could result in:

• Reports getting left in in-trays
  
• The review becoming half hearted
  
• Important data and trends getting lost amongst the mass of information
  
• People losing focus because they can not concentrate on everything
  

Whether you are measuring a person, a process or an organisation you should measure only what is important to achieve the result you are seeking (and this may change over time). There are seven golden rules for KPIs:

1. Have realistic targets – eg: if your target is on-going cost reduction you must take into account the reducing cost curve which means that as you reduce the cost per transaction each subsequent reduction becomes harder to achieve.
   
2. Reflect what you are trying to achieve – eg: if your goal is to process quicker to ensure your financial information is up-to-date, you will want to measure turnaround time. But why measure it every day if you are only really concerned about month end, or maybe the end of the week. Measuring every transaction is probably unrealistic so make it easy to do.
   
3. Be fair – you need buy-in for the measure to be effective and people need to feel the measure and target are fair otherwise they will not be motivated to achieve it.
   
4. Be supported across the organisation – there is no point having a KPI in one area which conflicts with the KPI in another. And because people need the help of others to get their jobs done, critical KPIs need to be part of everyone’s goals (to the extent that they have an impact on the outcome).
   
5. Not be counter productive – eg: an organisation had a stated goal of achieving long-term sustainable growth. Yet its bonus schemes were based entirely on achievement against the annual budget. The consequence was that senior managers made decisions based on the short term result not the long-term benefit. The bonus scheme targets needed to be balanced between the two desired outcomes because short-term gain is not always compatible with long-term sustainable growth.
   
6. Be (relatively) easy to measure - if it takes a lot of effort then you should question if it is the right measure or measure it for short (regular) periods. You want useful data with the minimum of effort.
   
7. Have a purpose – it is not data for data’s sake. You are measuring either the performance of the people, process or organisation, or that of an improvement initiative.