Chapter 8
Learning Objectives and Learning Outcomes
Learning Objectives
Learning Outcomes
Measures, Metrics, KPIs and Performance
Management
1. To introduce terminology associated with measurement
2. Need for a system of measurement 3. Characteristics of measures
4. Process used for defining good measures
5. Relationship of these measures to individuals/ teams/departments and the entire company
(a) Ability to explain the role of
Metrics in the
Business/Functions
performance management and decision making
(b) Ability to identify Metrics and Indicators in a given business scenario
(c) Ability to model a business scenario, identify the metrics, indicators and make recommendations to achieve the business goal
Session Plan
Lecture time : 90 minutes approx. Q/A : 15 minutes
Agenda
•
Measurement system terminology
•
Salient attributes of a good metric
•
SMART test for ensuring metric relevance to business
•
Supply chain associated with the metric
•
Fact-based decision making and KPIs
•
Few sample KPIs used by Human Resource (HR) division
Measurement System Terminology
Data – It is a collection of facts which have similar attributes or characteristics.
“Phone number” is a named collection of, say, mobile phone numbers of your friends.
Measure – Data with associated unit of measure (UOM) is typically termed as measure. “Lab hours per month” has a numeric data associated with “time duration”.
Metric – It is a system of measures based on standard UOM with a business context. The term business metric also refers to the same.
“Product defect rate” by city is an example of measuring “what percentage of goods was returned by customers in different cities”.
.
Indicator – It is a business metric used to track business results or success/performance.
“Call drop frequency” for mobile phone users is an indicator of user dissatisfaction.
Index – It consists of a composite set of indicators used to address the overall health of business operations.
Measurement System Terminology
A metric data when properly defined includes four components:
•
Subject –
This measure is about a customer, a product, a supplier, an
employee, etc.
•
Quantum
– It is the value of the measure, such as cost, frequency,
duration, amount, etc.
•
Stratum –
It is the grouping consideration expressed like By Location, By
Quarter, By Customer, etc.
•
Application –
Value compared with similar measurements like previous
month, forecast, target, etc.
Few Salient Attributes of a Good Metric
Metric Attribute Remarks Example
Name Metric should be assigned a simple, easy-to-remember name. Do not include codes, long words, and unit of measure.
1. eLearning Training Days 2. Average Lines of Code Abbreviation Short form used inside the organization. eTD/ ALOC in above cases. Description Provide explanation to help users
understand more contexts and comprehend the metric unambiguously.
eLearning Days – Total number of full-time days equivalent spent in training using online course delivery system. Users may log-in any number of times and duration of each session is captured in minutes.
Unit of Measure
(For data capture)
The commonly measured base unit needs to be included.
In the eLearning example, the unit is “Minutes”.
Scale Commonly reported granularity of unit of measure. We need to capture the conversion formula. Simple multiples like 1000 (K) or M (Million) are commonly used.
In the eLearning example as the data storage granularity is “Days”, the scale is “minutes/(60 * 8)” assuming 8 hours is a standard training day.
Metric Owner Position/department responsible and accountable for the metric
The training support manager in the training department could be an owner.
SMART Test for Ensuring Metric Relevance to Business
Test Test Focus
Specific Metric is clearly defined, articulated, and understood by all stakeholders, and is triggering action.
Measurable Someone in the organization must have the ability/instrumentation to accurately, easily and regularly measure the actual value at reasonable cost and technology. Think if a clinical thermometer would cost USD 1000!!
Attainable There will be no metric without target. This target may be stretched but must be attainable with the current level of people efforts and processes. Speed by cycle can’t be enhanced to 300 kmph no matter whatever be the technology used!
R esult-oriented
The metric must motivate team members performing the work. In businesses results are crucial.
Time-bound All actual values of metrics should be traceable to the date/time when the actual value measurement was taken. The instrument used for measurement also has a key role in sampling, accuracy, speed and correctness that can be verified in other ways.
Supply Chain Associated with Metrics
Component of Measurement Supply Chain Contribution
Entities to be measured Includes employee, vendor, product, customer,
asset, expense category, sales promotion, service feedback…
Instrumentation Measurement data, data capture and storage in
raw form
Raw material Reference data, definitions, benchmarks, limits …
Sub-assemblies Measures with unit, format, storage structure,
archives…
Product Business metrics approved, communicated and
measured, verified and analyzed with rigor
Metrics Delivery Reports, dashboards, scoreboards, alerts, Flash
Supply Chain Associated with Metrics
Component of Measurement
Supply Chain Contribution
Business Activity Areas
(Decisions/Actions)
Plan review, tracking project progress,
sales
campaign
analysis,
profit
forecast
Business Application
Budget control, quality improvement,
innovation projects
Business Value
Business
results
meeting
and
exceeding plan
Fact Based Decision Making and KPIs
KPIs are objective, measurable attributes of business performance, which
assist in informed decision-making.
KPIs should be:
– Relevance and functionality – The KPIs chosen should be directly related to
business results that the company is trying to produce in the specific business function. Like, your body temperature measurement can only indicate whether you have fever or not, but can say nothing about your blood pressure!
– Understandable – Chosen KPIs must be defined unambiguously. A KPI needs to
be understood in one and only one way by all stakeholders. It must be documented, and its definition must be easily accessible to all users.
– Reliability and Credibility – The value of KPIs needs to be authentic and
should be validated as “trusted” or “dependable”. Someone is going to base an important decision on the chosen metric. Adequate checks are needed to declare data as trustworthy. This also means that the data must represent the “single version of truth”.
– Abuse-proof – An abuse-proof measure is unlikely to be used against intended
