Potentials of Key Performance Indicators

Revision as of 13:26, 17 February 2019

Abstract

Introduction

Key Performance Indicators (KPI) is a management tool, which is widely used in companies, organizations and other types of project teams. KPI’s are used to achieve a common goal and help the ever development of an organization. KPI are a set of measurements, which mainly purpose is to reflect upon and keep track of the progress towards a set of requirements. KPI’s can be used to track the progress and performance of programs, projects and products e.g. This way the project team can make sure that their work is focused towards the goals set [Center for Lean]. KPI’s often associated with improvement of performance initiatives, because they can be used with other different project management tools in order to optimize workflows and routines.

The potential value of KPI’s

KPI’s works as a management mechanism, which can evolve around many aspects of an organization or project team. By using KPI’s the project manager can keep track of the quality of the different workflows regarding a project e.g. [1]:

• Quality of workflows and deliverables
• Customer/client satisfaction
• Efficiency & effectiveness
• Costs
• Time- and scheduling compliance
• General employee well-being

Instead of just setting a goal for a specific target, which are to be required, and hope for it to be fulfilled, KPI’s are used to monitor the progress during the execution phase. This way the project manager can make sure, that the different projects or programs are on schedule and on budget, by having the opportunity to measure and evaluate the current status.

Using KPI’s inside a project organization can potentially have multiple purposes in order to optimize and reach certain goals. KPI’s can help a project team by realizing and improving many different workflows. If used optimally KPI’s can be a tool to achieve e.g. [1]:

• Transparency of the project for stakeholders and the team organization.
• Increased production and productivity in services.
• A clear and mutual set of expectations for the workflow and expected output.
• An individual understanding of the organization and its general work.
• Increased motivation for stakeholders and employees working towards a common goal.
• A possibility for benchmarking and sharing of experiences with other similar companies or projects.
• Feedback on the general process and workflows regarding the progress of the project.

Indicators

Indicators are datasets, which are used to measure the performance of a certain project. In order to set up a KPI management tool, which can evaluate different progression aspects, indicators are needed as input. Indicators are the values needed for a comparison and evaluation of the current project status. This information is gathered through surveys or data generated from risk management tools or cost estimations etc. The amount and quality of indicators gathered for e.g. a benchmark analysis can variate and affect the outcome of the comparison. For example, the size of the information pool doesn’t directly correlate with the quality of the output, so the gathering of indicators must be thoroughly structured in order to achieve the best possible outcome for the project organization; as indicators works as the foundation of the measurements.

Indicators are information gathered in the past, which are describing the project or assessments in retrospect. The use of indicators is defined as ‘’lagging’’, because future aspects are not taken into consideration. Contrary to indicators, future measurements or predictions are called prognosticators, which evaluates different possible outcomes. These are widely used in risk management [2]. Indicators a categorized in two different types:

Quantitative indicators

“Objective” measures, which does not take feelings and subjective opinions into consideration. Mostly consisting of larger pools of information, which often is based on numeric values from e.g. cost expenses.

Qualitive indicators

“Subjective” measures, which is based on personal opinions and are affected by feelings. Qualitive indicators are often gathered throughout surveys to measure e.g. employee satisfaction.

Realizing the potential value of KPI’s

When defining KPI’s for a certain organization, the measures that are to be found, must reflect the core business objectives of the project. To achieve the best outcome the indicators must be chosen in order to fulfill the requirements of the common goal for the project. There are certain steps to work with, when defining the specific KPI’s to fit the business plan [Klipfolio]:

Desired outcome

This is the overall goal for the project to fulfill. For example, the goal could be “to increase the yearly revenue by 10%”. The desired outcome is not the outcome of the use of KPI’s, but the specific target of the business plan.

Matter of outcome

This is why the desired outcome is important to the organization. There must lie a reason behind every step of a business plan and the matter of the outcome are to define the scope of the action. For example, by increasing the yearly revenue by 10% “the company will grow economically and additionally will be able to achieve higher quality of services for the costumers”.

Progress measure

In order to realize the goal a measure is needed to track the progress. This step is closely linked to identifying indicators by getting an interpretation of the process development. If the goal was to increase the yearly revenue by 10%, a progress measure could be to track the sale development in dollars e.g.

Influence of outcome

The influence of outcome describes which actions that are taken towards realizing the goal set. To achieve an optimization in an organization’s business plan it requires a certain set of assessments working towards the end goal. These actions must help improving the efficiency of workflows or the business model. For example, a new communication- and promotion strategy could be applied to the services offered in order to achieve an increased revenue.

Responsibility of outcome

The task of improving the yearly revenue must have a person, which is responsible for the outcome to satisfy the requirements set. This can be the project manager, but also the CEO or the financial manager can be put in charge of the responsibility. The task of this person is to make sure that the project is realized in the end. This does not necessarily mean that they are in charge of controlling or leading the project.

Achieving the outcome

When the actions of the business plan have been carried out, the organization needs to define a set of measurements, which can tell if the goal was achieved. This works as an if-statement, so if certain requirements are fulfilled, then the project has achieved its goal. For example, if the yearly revenue has gone up by 10% in the end of the project time, then the goal set has been realized.

Progress review

Progress review is an interval-based review process of the progress measures, to make sure that the business plan is followed. For example, the organization can have a weekly or monthly compliance meeting with the project progress in focus.

These focus points are to be taken into consideration, when creating the KPI’s suited for a specific project or organization.

References