Key Performance Indicators Key Performance Indicators, KPI

Key performance indicators (English Key Performance Indicators, KPI ) - is indicators of the activities of the unit (enterprise), which helps the organization in achieving strategic and tactical (operational) goals. The use of key performance indicators gives the organization the opportunity to assess their condition and help assess the implementation of the strategy.

KPIs allow you to monitor the business activity of employees, departments and the company as a whole. The term “key performance indicators (KPI)” is often used in the Russian translation of “key performance indicators” (KPI), but this is not quite true [1] .

With the translation within the meaning of the words key (a key characterizing the degree of achievement of any goal, essential for one of the company's activities) and indicator (indicator, indicator), problems do not arise, but the word performance cannot be unequivocally interpreted, although technically it is “performance , Efficiency. Correct wording can be found in ISO 9000: 2008. He divides the word performance into two terms: performance and efficiency. According to the standard, performance is the degree of achievement of the planned results (the company's ability to focus on results), and efficiency is the ratio between the results achieved and the resources expended (the company's ability to realize its goals and plans with a given quality level expressed by certain requirements - time, cost, degree of achievement of the goal). The word performance combines performance and efficiency. Thus, the correct translation of the term KPI will be a “key indicator of the result of an activity,” since the result of an activity contains both the degree of achievement and the cost of obtaining a result [1] .

KPI is a tool for measuring goals. If the indicator that you came up with is not related to the goal, that is, it is not formed on the basis of its content, then this KPI cannot be used. Technologies of setting, revising and controlling goals and objectives formed the basis of the concept, which became the basis of modern management and is called “Management by Objectives”.

Management by Objectives is a method of management activity that includes:

• anticipation of possible outcomes
• planning ways to achieve them

The founder of the "Management by Objectives" is Peter Drucker (it. Peter Ferdinand Drucker (1909-2005)). It was he who turned the management - an unpopular and not respected specialty in the 50s of the XX century into a scientific discipline. Peter Drucker is also the founder of the performance measurement system - goals through key performance indicators. According to Drucker, chiefs should avoid “time traps” when they are involved in the process of solving current day-to-day tasks, because this leads to the fact that they begin to forget to perform tasks aimed at achieving results (goals). The modern embodiment of management by objectives is the “KPI System”, which includes many management concepts that have emerged over the past 20–30 years and complement the classic “Management by objectives”.

According to Peter Drucker, only a few areas of management have such a great influence on the organization as the evaluation of the activities of the divisions and the company as a whole. However, the assessment, emphasizes Drucker, today one of the most poorly developed areas of management. So as a result of a survey conducted in the United States, it became clear that 60% of top-level managers are dissatisfied with their performance measurement systems. According to Russian estimates, the number of Russian managers is even higher, more than 80%. This dissatisfaction is expressed in the absence of a connection between plans, execution, results and motivation [2] .

KPI and staff motivation have become inseparable concepts, as using these indicators (KPI) you can create a perfect and effective system of motivation and incentives for company employees.

Depending on the company's strategy, there are different KPIs. Basically they are used to determine the performance of administrative and management personnel. For example, in the strategic goal “to increase the average income per client from 10 rubles to 15 rubles for 2008”, the key indicator of effectiveness is “average income per client”. KPI is not Key to success. In the example above, the key success factors will be anything that is needed to achieve this goal, for example, organizing the production of a new product.

Key performance indicators can be divided into:

• Late - reflect the results of activities after a period
• Leading - provide an opportunity to manage the situation within the reporting period in order to achieve the desired results after its expiration

The lagging include financial performance. Financial indicators show a connection with the wishes of the owner and the company's ability to generate cash flows, but because of their late nature they cannot describe the current efficiency of the divisions and the company as a whole [3] .

Operational (leading) indicators tell about the current activities of the divisions and the company as a whole, simultaneously and indirectly answering questions about what cash flows can be in the future, as well as the quality of processes and products, the degree of customer satisfaction [3] .

Key performance indicators are part of the Balanced Scorecard system, which establishes a causal relationship between goals and indicators in order to see patterns and mutual factors of influence in business - the dependence of some indicators (performance) on others.

Content

• 1 KPI Development
• 2 Rules and principles of KPI implementation
• 3 See also
• 4 Notes
• 5 Literature
• 6 References

KPI Development

Development of KPI is recommended to be carried out in a number of stages [4] :

1. Pre-design work:

• Getting approval and support from top executives.
• Initiation and planning of the project.
• Creating a project team.
• Conduct pre-research.

2. Development of the KPI system methodology:

• Optimization of the organizational structure.
• Development of a methodical model.
• Development of a company management process based on KPI
• Development of a system of regulatory and methodological documentation (regulation).

3. Development of KPI information system:

• Development of TZ for setting (programming) information system.
• Setting (programming) information system.
• User training.
• Conduct trial operation.

4. Completion of the project. Putting the KPI system (methodology and information system) into industrial operation.
When developing a KPI methodology, it is important to focus on:

1. Changes in corporate culture and process organization
2. Developing a holistic KPI development strategy
3. Explaining the benefits of KPI staff
4. Identification of general corporate KFU
5. Choosing a crucial KPI for the entire organization
6. Developing a reporting structure for all levels
7. Coordination of Solving KPIs
8. Refinement KPI to maintain their relevance.

Rules and principles of KPI implementation

1. Rule "10/80/10" - Kaplan and Norton recommended using no more than 20 KPIs. Hope and Fraser suggest using no more than 10. The best recommendation from current practice is the “10/80/10” rule. This means that the organization should have about 10 key performance indicators, up to 80 production indicators and 10 key performance indicators. For divisions, Panov recommends using no more than 10–15 KPIs, otherwise managers will be overwhelmed with planning, and company management will be “debriefing” for KPI execution, which do not greatly affect the performance of both divisions and companies [5] .
2. The principle of controllability and controllability - The unit responsible for a particular indicator should be allocated resources for its management, and the result can be monitored [5] .
3. Partnership Principle - Successfully addressing the challenge of increasing productivity requires the establishment of an effective partnership between all stakeholders: the joint development of a system deployment strategy, the need to achieve an understanding of the fact that change is needed.
4. The principle of shifting efforts to the main directions - Increasing productivity requires expanding the authority of the organization’s employees, especially those working directly on the “front line”: helping employees in need of advanced training, ensuring training, transferring responsibility for developing their own KPIs, effective communication (horizontal and vertical)
5. The principle of integrating performance measurement, reporting and productivity improvement processes - It is very important that managers create an integrated performance assessment and reporting framework that encourages specific, responsible actions. It is necessary to hold regular reporting meetings, on dates, depending on the complexity of the issue being resolved.
6. Principle of alignment of production indicators with the strategy - Indicators of production activity are meaningless as long as they are not tied to the current critical success factors (KFU), constituting a balanced scorecard (MTP), and the organization’s strategic goals.

In practice, the development of KPI uses process and functional methods. Based on the strategy and objectives of the organization, the first involves the description and optimization of the business processes of the organization, the second - the formation of an organizational structure that reflects the main activities and the composition of business units. The features of these approaches are analyzed by Oleg Kulagin .

As part of the management method for the objectives and the development of key performance indicators (KPI), we consider two practical approaches to the development of KPIs for an organization, divisions and employees - process and functional.

In the continuation of the series of articles devoted to the management method for the objectives and the development of key performance indicators (KPI), we consider two practical approaches to the development of the organization's KPIs, divisions and employees - process and functional.

The first approach is process . In accordance with it, the description and optimization of the organization’s business processes takes place on the basis of the strategy and objectives. The result of this work should be not only the description in one or another model (notation) of business processes "as is" and "as it should", but also the formulation of the objectives of each business process. At the same time, the goals of the processes are formulated in general terms as goals-intentions without reference to certain indicators, terms and standards. For example, if in the company and, in particular, in the sales department, the “Search for new customers” business process is formalized, then its immediate goals are “Expanding the customer base” and “Growth in the number of new customers”. For the business process "Management of accounts receivable" the goal can be formulated as "Reduction of overdue receivables" or "Increase in receivables turnover". For the business process “Stock management of products in stock,” the goal is formulated as “Increasing inventory turnover”. The business process “Fulfillment of customer orders” may have several objectives: “Compliance with the delivery time of goods”, “Minimization of logistic defects”, “Meeting customer requirements for quality and completeness of orders”. And so for any process occurring in the organization and its divisions. The process of any level corresponds to one or several goals, which are formulated and fixed in the established documentation and regulations of the company's business processes.

If we know the goals of business processes, then we select the appropriate indicators for them, with the help of which we can assess the degree of achievement of these goals. Examples of business processes, business process goals and business process KPIs are shown below.

Business process performance indicators are KPIs of managers and employees who are responsible for the results of these business processes. We can move from business processes to official positions in an organization using matrices of responsibility for business processes and divisions. Thus, each employee - from the general director to ordinary employees - receives his own set of KPIs, with the help of which goals-results are formulated and their work is evaluated for a certain period of time (month, quarter, year).

All right, all great. But there is one small difficulty. For the practical implementation of the process approach to the development of KPI, a description and formalization of the organization’s business processes should be performed. According to the most optimistic estimates, currently only about 5% of Russian enterprises have a description of their business processes. What to do the rest? Follow their example and go to process management together? But overnight will not work. This is a titanic work, which is far from always a success. But even in case of its successful completion, there is no guarantee that the enterprise will gladly accept this description as a guide to action and will live under a new charter. But even if this happened, and the business processes “as it should be” earned, then over time the description of these business processes often begins to lag behind real life. The work of the company gradually accumulates changes that are not adequately reflected in the schemes and regulations of business processes. As a result, the description of the processes becomes outdated and begins not to help, but to hinder and slow down the real processes occurring in the organization. At best, the old description of dead weight lies in the office of the director or in the quality management department and does not affect the efficiency of work in any way. The process description should be proactive , i.e. continuously updated at the pace of real change and even a little bit faster. This is the right way, but too troublesome, difficult and thorny. And while not all organizations are ready to embark on it and follow this path. What to do? Abandon KPI as an overseas curiosity, which we are not yet "in the teeth"? Is it possible to develop a system of key performance indicators without a description of business processes? Can. Using a functional approach.

So, the second approach is functional . In accordance with it, on the basis of the strategy and objectives of the enterprise, its organizational structure is formed, reflecting the main activities and the composition of business units (divisional structure) and the functions or projects performed in each of these areas (linear-functional, matrix, project structure). Any organizational structure determines the composition of positions (staffing) and the relationship of responsibility between them. Then, for each position in the structure of the organization, its service functions are determined according to the product method. How this is done, we have already discussed in the previous article “Service functions as the basis of KPI”. If we know the service functions of managers and employees, then for each of them we develop certain indicators to assess the degree of fulfillment of this function.

In accordance with this approach, performance indicators at different levels (organization-division-employee) are developed based on the goals of the enterprise and the service functions of managers and employees of the divisions. At the organization level, for each goal, we select or develop appropriate KPIs to assess the degree of achievement of this goal. Similarly, at the level of departments and employees for each function, we select one or more indicators that directly or indirectly assess the level of performance of this function. Поскольку функции подразделений получены в результате декомпозиции целей предприятия, а функции сотрудников логически вытекают из функций подразделений, то KPI сотрудников будут обеспечивать KPI подразделений, а KPI подразделений, в свою очередь, будут «работать» на KPI организации. Показатели разных уровней взаимосвязаны как причина и следствие. Так цели организации последовательно передаются «сверху вниз» на уровень подразделений и сотрудников.

Consider a few examples.

Пример 1. Переход от целей к KPI организации.

Example 2. Transition from service functions to employee KPI (for the head of sales department).

Пример 3. Переход от служебных функций к KPI сотрудника (для начальника отдела закупок).

Thus, we get a set of indicators of the organization, units and employees. The composition of the indicators should be balanced. Therefore, it is convenient and desirable to immediately group them into four types: team - individual, quantitative - qualitative. By filling in the following table for each post, we get a KPI library of posts.

KPI posts.

Example 4. Library KPI head of the department of wholesale sales (trading house).

Пример 5. Библиотека KPI начальника отдела закупок (торговый дом).

Таким образом, спускаясь от целей предприятия и функций подразделений и сотрудников к разработке KPI, позволяющих оценивать их исполнение, мы получаем для каждой должности библиотеку показателей, которые могут использоваться для оценивания результатов работы сотрудников. В состав библиотеки KPI должности могут входить разнообразные показатели, но для проведения оценки сотрудника за определенный период времени (месяц, квартал) мы выбираем из библиотеки самые важные KPI, чтобы сконцентрировать внимание и энергию сотрудников на достижении наиболее приоритетных результатов. Как это делается? Об этом поговорим в следующей статье.

KPI, позволяющих оценивать их исполнение, мы получаем для каждой должности библиотеку показателей, которые могут использоваться для оценивания результатов работы сотрудников. В состав библиотеки KPI должности могут входить разнообразные показатели, но для проведения оценки сотрудника за определенный период времени (месяц, квартал) мы выбираем из библиотеки самые важные KPI, чтобы сконцентрировать внимание и энергию сотрудников на достижении наиболее приоритетных результатов.

See also

• Predictive Index - a psychological test when applying for a job
• Key Performance Indicators Key Performance Indicators, KPI