The challenge for accountants is to find meaningful KPI’s among the many possibilities through understanding of the organization business. The right business questions accountants need answers to:
· Where are we heading?
· Have we achieved our target?
· How best do we get there?
· Are we progressing towards our target?
· Are there any unintended consequences of our actions?
· Why are we getting the result we are getting?
· What is likely to happen in the future?
In measuring and managing organizational performance, we also need answer to the followings:
· What key Result Areas (KRAs) and Critical Success Factors (CSFs) define our performance?
· What prioritised goals or objective are needed to achieve our KRAs and CSFs?
· What KPIs measures progress towards the goals and objectives?
· Who is responsible for reporting on and answering queries on the performance of each KPI?
· How often and where performance on KPI’s should be review.
Performance measures and KPI’s refers to the same concept. The word ‘metric’, ‘measure’ and ‘KPI’ are used interchangeably. KPI’s are classified as follow:
· Performance results (long and short term)
· Performance drivers (80-20 rule)
DEVELOPING EFFECTIVE KPI’S
Write down the goal, objective or result you want to achieve
Describe in more detail
Check for any unintended consequence of achieving (either positive or negative)
List potential thing you could count or measure that give evidence of goal, objective or result was actually occurring
Give it a high, medium or low rating
Make sure ratings are according to:
a) Quantity - what measures tell us the number of occasions of services, outputs or production volume?
b) Quality – what measures indicate how good is the provision of the service or product in term of
· External quality (customer acceptance).
· Internal quality (efficient process).
c) Revenue – what measures how much money the product or services generates
d) Cost – what measures the unit cost of the product or services, including the activities and resources involved?
e) Speed – what measures indicate how long it takes to perform an occasion of service or to design, manufacture and deliver a product?
Use the high, medium and low ratings
Form of Measurement
- Measures processes
- Measures how productivity activities are performed
- Measures result
KPI’s can be expressed in the following forms:
Properties of Good KPIs
- Measures must be realistically achievable or humanly attainable.
2. Agreed to
- Agreed upon KPIs will secure buy-in, commitment and full understanding
- Will make weighted measures and targets more relevant and valid.
- Integrate with goals and objectives, vertically and horizontally.
o Employees must have a significant degree of control, authority, and influence ever the achievement of the measures or performance.
5. Linked to recognition/reward system
- celebrate good performance
- Job-related and quantifiable
- logical and clear relationship to an objective
- Specific to individual who is responsible and held accountable for the job’s performance.
- Must have time-frame
- Independently veritable by 3rd party or expert.
11. Workload realities
- Allocate KPIs in the context with other job, assignment, bounded by limited working hours.
Three Criteria Test
1. Strategic criteria
- Enable strategic planning
- Drive deployment of actions required to achieve objective and strategies.
- Aligns behaviour and initiatives with corporate strategies
- Focus the organisation on its priorities.
2. Quantitative Criteria
- Provide clear understanding of progress towards objective and strategy, current status, rate of improvement, and probability of achievement
- Identify performance gaps
- Highlighting improvement opportunities.
3. Qualitative Criteria
-valued by organization and people involved
Once we decide on the KPIs to be measured, we then have to decide what data to collect. 2 basic uses of the data are:
· Improvement of performance
Managing with KPIs requires accountants to appreciate that some measures/ matrices are less than perfect. Thus the need to manage around these imperfections. Right measures will drive the desired. Behaviour to achieve the required performance level and targets.
Patrick PC Ow