The implementation of KPIs

Developed by Shri Tejas Vedula

Abstract

Performance measurement is an important aspect in organisations all around the world. The performance measures should help align the activities to the objectives of a project or an organisation. Indicators for performance hence, aid in transforming and communicating performance measurement to the respective members involved in an organisation. Key Performance Indicators or KPIs are critical indicators that aid in tracking the progress of a project, program or portfolio. Firstly, the article intends to cover the explanation and intended development and use of KPIs in the existing literature i.e. The PMBOK and Prince2 and their respective standards for project management etc.. Secondly, the article focuses on the design and practical application of KPIs in order to control and monitor project decisions and actions. Furthermore, the article will emphasize on the challenges faced by organisations and modern day managers in relation to deriving beneficial meaning from the plethora of the available key performance indicators. Multiple ways of projecting KPIs will be presented wherein, one relevant and specific tool will delved to a greater extent.

What are Key Performance Indicators ?

Wayne Eckerson's definition of a KPI is, "A KPI is a metric measuring how well the organization or an individual performs an operational, tactical or strategic activity that is critical for the current and future success of the organization".

A KPI can be dissected as the following.

• KEY= A great contributor to the success or failure of the project. A KPI is not just an ordinary metric,it can make or break a project.
• PERFORMANCE= Defines a metric that can be quantified, adjusted, measured and controlled. In order to improve performance, the metric must be controllable.
• INDICATOR= It has the ability to clearly represent the present and future performance.

In general, KPIs convey to you where you are in a project in reference to where you ought to be. They help build value for an organisation by aligning performance in the lower level to the organisational level.

KPIs for projects can be interpreted in two manners. One, being the project will aid the organisation in achieving a general, strategic KPI and the other being that KPIs can be used a progress measuring tools for ongoing projects.

A brief history of the application of KPIs

KPIs were used by the Wei dynasty rulers in China to rate the performance of the members of the royal family . Performance management and its concepts moved to the industry in the 20th century when there was a need for monitoring the performance of individual employees during the industrial revolution. The use of financial indicators and operational performance management became widespread in the 1930's when a dashboard-like "tableau de bord" was introduced in France to monitor performance. However, the creation of the balance scorecard by Dr Robert Kaplan and Dr David Norton was revolutionary in terms of introducing the first modern KPI framework.

KPIs as seen in project management standards and knowledge bodies

The PMBOK presents the potential use of KPIs under the umbrella of Project Integration Management. KPIs are represented as an aspect of project management information system which are in turn presented as tools and techniques to direct and manage project work. The primary uses of it also lie in project governance where monitoring performance is key. They can also be used in assessing the project's performance in comparison to the plan at the control point in the project life cycle. Monitoring and controlling project management process group. As an aspect of the Project Communications Management in the PMBOK® Guide, the collection, analysis, and the reporting of metrics and especially performance metrics is important for monitoring and controlling the progress of any project. These metrics are important for both the project manager and any related stakeholder connected to the project.

The PMI standard defines the Monitoring and Controlling Process Group which consists of processes that are required to track review and regulate the performance of a project (source: PMI standard). Monitoring refers to the collection and production of performance data and measures respectively. Controlling, on the other hand refers to the comparison of the actual project performance to the planned performance and project scope baseline. Hence, KPIs in such instances are critical tools.

PRINCE2 defines the use of KPIs as a measure of success. It is defined as a measure of performance that denotes how successful an organisation is in progressing towards its organisational objectives. It recommends the KPIs to be designed keeping balance in background. The balance should be achieved between qualitative and quantitative measure, project inputs and outputs and leading and lagging indicators which allow managers to track project progress during and after the completion of events. Additionally, PRINCE2 suggests the use dashboards to graphically represent the project progress. It suggests the use of common graphical tools such as pie charts and histograms to depict the project progress. These tools allow for easy understanding for stakeholders at all levels.

Designing and defining the KPIs

PRINCE2 suggests that the KPIs should be meeting the "acceptance criteria" and quality expectations which are defined in project product description while also satisfying the project tolerances such as time, cost, scope etc. which are defined in the project initiation documentation. The quality criteria particularly pertains to the KPI being SMART i.e. Specific, Measurable, Achievable, Relevant and Time-Bound .

The design and identification of KPIs will be easier pertaining to the fact that the Critical Success Factors (CSF) for the project are defined and identified. A KPI provides a leading indication if the CSF for the respective project is on track to be met.

It is critical to choose the right KPIs because:

• They allow for better decision making
• They improve project performance
• They improve customer-contractor-stakeholder relations
• They help in quick identification of problem areas

The SMART methodology is a good reference map for defining KPIs but Wayne Eckerson has developed a much more rich and detailed characteristics to design a KPI. According to Eckerson, KPIs are to be:

• Strategic
• Simple
• Owned
• Actionable
• Timely
• Referenceable
• Accurate
• Correlated
• Game Proof
• Aligned
• Standardized
• Relevant

Relevant examples and KPI types

KPIs can designed in multiple categories such that they benefit a project manager. Primarily, these categories include: Time based KPIs such as Cycle time, On-Time completion percentage, Number of adjustments to the schedule etc. Budget based KPIs such as budget variance, number of budget iterations etc. Quality based KPIs such as customer satisfaction and complaints, number of errors produced etc. KPIs depicting effectiveness such as number of project milestones completed on time.

Steps for successful KPI implementation for projects and organisations

Figure 1:Building blocks for achieving successful implementation of KPIs in organisations and projects

According to the "KPI-Developing, implementing and using winning KPIs " book by David Parmenter, seven foundation stones are required in order to successfully develop, utilize and implement KPIs in an organisation. It is important to note that the following steps are directly applicable to implementing KPIs in an organisation but suggestion from trusted sources assures that these steps and foundation principles can be translated and adapted from an organisation and workplace based application to a project, program or portfolio based one.

• It is of utmost importance for a project or organisation to have the CEO and top management on board and committed to change

• It is important to assign a home grown chief measurement officer who has the know-how of the particular organisation.

• Leading and selling organisational change using John Kotter's model of leading change.

• Critical Success Factors (CSF) are the origin of all performance measures. It is important for a project manager to recognize the project's CSFs.

• Determining and recognizing KPIs that are suitable and tailored to the projects needs.

• Developing a reporting and KPI representation and projection framework for the specific project in order to drive performance.

PRINCE2 correlates the success of business performance to the maturity of an organisation.

KPI systems for the modern project manager

There are three primary ways to implement, monitor and keep tabs on the selected KPIs. They are namely:

1. Scorecards: Primarily, used for aligning operational execution to the business strategy. Real world execution is mapped to a specific strategy.A balance scorecard KPI example can be "Profitable sales growth" which is the amalgamation of multiple customer and financial based metrics. A scorecards belongs in the most on the business decision making spectrum.

2. Dashboards: A dashboard provides the project manager with an overview of the key information in an intuitive and insightful manner. The dashboard as a tool is lesser strategic in nature in comparison to the balance scorecard. Hence, it falls a level below in the business decision making process. The execution of the operational goal directly contributes to the strategic goal of the project.

3. Reports: Reports are the most common and simple way of presenting KPIs. They offer an easy to read, classic yet deep overview of the project progress to the respective stakeholder.

Figure 2: A boundary box for the KPI target

Figure 2 depicts the boundary box for a KPI target. It is a natural choice of color to warn cautions and dangerous territory of the KPIs. The acceptable percentage boundaries from the target are based on the integrity agreements with the stakeholders.

The use of Dashboards as a conventional source of graphical representation of KPIs will be analysed to a greater depth in the following section.

The use of Dashboards for KPI monitoring

Dashboards are powerful communication tools that help convey and project results from KPIs. When properly implemented, dashboards can be very powerful for e.g. they provide business intelligence. Their primary intention is to provide the most important information without the unnecessary clutter and confusion. Hence, dashboards aren't detailed reports. When effectively used, they reduce the meddling between stakeholders and top executives. The project manager's responsibility includes the explanation and interpretation of the KPIs displayed on the dashboard to the stakeholders. Typically, cluttered dashboards lead the way to project failure as the stakeholders are confused when keeping track of the KPIs and are unable to direct accurate and relevant strategic decisions. Hence, as mentioned in the previous sections, it is critical to keep the dashboard layout, the end user's needs and basic project management concepts in mind when designing the very Key Performance Indicators. Dashboards also propagate visual thinking as the information is presented and perceived visually. There are three main criteria that need to be considered when designing a dashboard:

• They need have aesthetic appearance

• Lucid and easy to understand

• Contain retention

Dashboards should communicate very clearly, meaning the viewers should gain an instant understanding of the KPIs that are being projected such that actions can deployed. However, the information by KPI projected on the dashboard should be substantial enough such that and educated decision is made. Dashboards should be designed in such a way that the need for scrolling shouldn't arise.

Data gathering for the specific dashboard

A top down approach is required in determining the data required for projecting KPIs in a dashboard. There should be considerable input from relevant stakeholders to determine their specific needs for developing a KPI. It is important to determine the level at which the relevant stakeholder requires his/her KPI overview. A high level request could be, for e.g. "I want to have an overview on how the project is running compared to the intended schedule" and a low level request could be "I want the figure for the scheduled performance index = (earned value/planned value)" which determines if the project is ahead or behind the planned project schedule which is similar to the former request but is much more specific and involves other discrete parameters.

Discussion

Why do KPIs fail ? / Limitations

The failures of KPIs implemented on projects primarily correlates to the lack of an overview available to the project manager. The relevant members in the organisation believe that tracking the KPIs ends in the first line manager level which is a common misconception as represented by the balance scorecard. Another reason for failure of KPIs is the lack of power for the measuring officers or KPI responsible to take timely regulatory action towards negative indications. This also applies to project managers not taking timely actions towards certain "urgent" KPI indications. This particular risk is however, lower in the case of project managers when they are solely responsible for the tracking and monitoring. Sometimes, KPIs implementations fail due to non-frequent monitoring. A slow rate of change deludes the responsible manager into its frequent monitoring. Over reliance on a whole host of KPIs also creates a recipe for failure within organisations. It creates confusion among the members responsible for recording the measurements.

Additionally, intangible KPIs for e.g. KPIs focused at a strategic level are at risk of being misinterpreted where there is a lack of simple,lucid objectives and measurable goals.

As a tool under the wing of Performance Management Systems (PMS), KPIs have tendency to be limited to only projecting numerical information. The notion of using purely numerical KPIs is not challenged. (Limitations of Performance Measurement Systems based on Key Performance Indicators).

According to an MIT Management Review Study, KPIs are also found to be greatly underutilized as a leadership tool. KPIs, in an organisational perspective are said to be utilized in order to gain a more holistic understanding of the customer. They are key in defining success for data-driven organisations and projects.

The

Annotated Bibliography

• A Guide to the Project Management Body of Knowledge (PMBOK® Guide), Fifth Edition

Chapter x - It is the bible for project managers,

• Wiley, Project Management Metrics, KPIs, and Dashboards A Guide to Measuring and Monitoring Project Performance, Third Edition

A comprehensive book explaining that addresses all aspects of metrics management from the PMBOK® Guide

Annotated Images

[Figure 1] Inspired from the Winning KPI's handbook but created by Shri Tejas Vedula

[Figure 2] Inspired from the KPI, Dashboard handbook but created by Shri Tejas Vedula