How Do You Select The Right KPIs?
As appeared in the January Edition of Noria’s Lean Journal e-newsletter
LCE Benefit Tracking and KPI Reporting
Principles of Performance Measurement
Principles are beliefs, codes or morals used to guide any client company’s business behavior. They bring consistency, predictability, integrity and trust to performance measurements across all functions so that employees can understand their role within the system. The target is to create employee ownership and the belief in ONE CULTURE, ONE TEAM.
The framework of seven principles below is an example that attempts to incorporate basic, fundamental thinking into the creation of meaningful Key Performance Indicators (KPIs). Keeping the “End in Mind”, KPIs should create value/full potential and help to establish competitive advantage. The seven principles of performance measurement really describe qualities that performance measures should have if they are honestly going to be useful:
1. Have a clear Purpose (End in Mind)
Use performance measures which provide objective evidence of the results that either define or lead to success for your business so your attention can effectively stay on what matters most in achieving, sustaining and elevating that success.
2. Think systemically (Holistic Approach)
When you create, interpret or use a performance measure, think carefully about the unintended consequences that could result from using it, such as impacts on other areas of performance and especially for the success of your cross-functional business as a whole.
3. Align with processes (From Independent to Interdependent)
Use your cross-functional, interdependent business processes as the framework for selecting and defining KPIs so they can translate targeted performance results into direct, actionable and appropriate action.
4. Drive the right behavior (One Culture, One Team)
Create measures that will encourage and reward people to act in ways that achieve desired results, and sustain and elevate business success. People know that many business decisions are driven by performance measures.
5. Build in integrity and trust (Ownership)
Ensure that your data, measures/ KPIs are valid and conform to accepted standards (both intuitively and statistically) by being unbiased, transparent and accurate enough to clearly define and fit their purpose.
6. Understand variation (Technology, Processes, People)
Take account of levels of inherent variability in performance levels (predictability)when you interpret measures/ KPIs to decide if and when you need to do something about it,(mostly too late and a dollar short) as opposed to reacting to rapid changes and trends.
7. Integrate with decision making (Change, Focus, Speed, Results)
Design the measurement/ KPI process so that it provides the most useful information in the most useful way so employees can engage to explore questions, assess options , make decisions and take actions to continuously improve (CI) processes measures/ KPIs by employing proven methodologies, i.e. PDCA, DMAIC, A3.
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