Setting Targets

Setting targets for Performance Indicators should be well thought through. This should not be an exercise in looking at the historical average (unless that is specifically relevant) and then apply 10% as the desired increase. You will want to review history, but you need to understand the goal. It is also important to define the KPI clearly.

For example, let's use the retail market's target of sales to sales last year. Retail has traditionally looked at this on a daily basis, as well as rolled up to the week, month, quarter, and year. I have two primary concerns with this:

1. If the weather was bad, we ran a promotion, or some other contributing factor, we may not know it and are really not comparing apples to apples. Additionally, what if last year was really bad? Beating that number doesn't do much for us.  
2. If we are reviewing this on a daily basis, we loose institutional knowledge due to the repetition. What if we miss a day? Is there any repercussion? What if we miss three days in a row? What if we miss 10 days out of 14? Were there enough days in there of good performance to hide the fact that a trend is occurring?

What would make more sense to me would be to look at this number as a rolling average, or take the total sales for the last 365 days / 365 on a daily basis. Here we can very quickly identify a positive or negative trend, as we don't have to look at numbers that swing wildly by the day of the week. Instead of talking about  a couple of bad days, we understand that even though we had a couple of bad days, the overall trend is above the goal. We can also integrate our sales goal and show it relative to the trend line.  

Scorecard or Business Fact Sheet

A common Scorecard design is to list a bunch of business facts - how many customers, total square feet, total employees, inputs, etc.  While these can be important business facts that executives need to know, they may not be manageable numbers.  By adding them to the scorecard, they take up valuable real estate and misdirect focus.  

As you are thinking through your scorecard design, take some time to consider if an item is a REAL KPI, or just a business fact.  Then design the scorecard to focus on objectives with potential links to business fact report(s).

Initiative Performance Indicators (IPIs)

I made the argument that Key Performance Indicators and Key Risk Indicators are really the same thing, yet a nuance worth discussion is initiative management.  We launch new factories, new products, training programs, marketing material, etc all the time, yet often do a sub-optimal job managing the project.  And execution waters down further as we try to manage the portfolio.

Even though initiatives are different than performance indicators, we need to account for their management within the same framework.  We need to understand our objectives, the priorities, resource constraints, milestones, etc in order to more proactively manage the business to achieve more strategic goals.  We need to enhance our ability to discuss our progress to our goals (both annual and strategic) and how all the KPIs and Initiatives are working together to achieve the end.  

Efficiency vs. Effectiveness KPIs

Key Performance Indicators (KPIs) should be measures of risk to annual goals or strategic objectives.  If we can keep this list of KPIs minimal, we stand a much greater chance of keeping the organizational focus on improving key processes.

To derive these KPIs we need to understand the organizational inputs, outputs, and desired outcomes.  While this is a little academic, it is a good way to start to organize and define your KPIs. Outputs / Inputs are measures of efficiency, while Outcomes / Inputs are measures of effectiveness.  By overlapping the organizational or departmental focus we can align and define these KPIs to make sure they are driving the desired behaviors.  

Tradionally Sales and Marketing goals are to be effective, thus revenue per head, or win percentage are better measures.  While finance and IT are generally geared for efficiency with cost per order, or IT spend per target are more common.  

KPI design is far more difficult than people expect and is often unique to the environment as strategies, objectives, and priorities vary organization to organization.

Scorecards & Dashboards

These are two terms that the BI world uses interchangably.  The only thing they should have in common is that they both can visually display data.  

Defined:

Scorecards are tools that help facilate discussions around strategy and operational performance management.  The indicators (KPIs) should foster discussions about corporate direction, resource allocation, priorities, and initiatives.

Dashboards should be used for tactical discussion triggers, like inventory orders, technical support, phone coverage, etc.

What should be happening with these tools is a far more structured use for each (and throw in reporting as well).  All too often these tools are used without discipline which leads to mulitple versions of the truth, lack of focus, red herrings, miscommunication, and ultimately a waste of time and energy.

IT and business users need to work together to better understand what each tool can provide, when that tool will be used, how it will be used, how it will NOT be used, and who should be using them.