Unit IV

Business Performance Management Systems

# How BI is used for Business Performance Management (BPM).

Business information technologies Business Information Technologies

are seen as cutting edge Information Technologies made on purpose to
support business information engineering.
Management methods, techniques and support tools could be seamless
integrated with Business Intelligence components in special tailored or
customized Performances Management systems.
The main functions of these systems are: -To gather and store different
measures of the business on a regular basis (current state indicators of
the business performances).
-To gather and store benchmarks and targets (threshold values) and
business rules (interpretations of comparison results between current
performance’s indicators and etalon values).
-To facilitate roll-ups and drill-downs of analyzed indicators along
hierarchical aggregation criteria (structured Performance
Measurements).
-To keep the ongoing analysis alert - allowing decision makers to quickly
evaluate which business processes are successful, and which need their
attention.
To summarize, an effective Business Performance Information System is
built and maintained by business users to support the decision-making
process especially at strategic level, making use of various indicators
– quantitative and qualitative, lagging and leading
– balanced against targeted objectives and/or industry benchmarks.
Lately, with performance measurement periods becoming shorter,
management must have the capability to more proactively influence the
outcome.
That requires monitoring and tracking capabilities that can generate
current, complete and accurate information upon which they can act in
real time. Business information technologies must respond to that need
of proactively managing business performance. 2. Business intelligence
and business performance management Business performance
management (BPM) can be considered as being the final component of
business intelligence
– the next phase in the evolution of decision support systems, enterprise
information systems and business intelligence. If BPM is an outgrowth of
BI and incorporates many of its technologies, applications and
techniques, than why BI itself can’t deliver the insight needed to
improve overall business performance? From a theoretical viewpoint, it
can. From a practical standpoint, it hasn’t (table 1).
Like decision support, BPM is more than a technology. It involves the
processes, methodologies, metrics and technology used to monitor,
measure sand manage a business.
Once selected the business process that has to be improved, and the
business methodology to be implemented, there are the metrics (to
monitor, measure and change) to be established.
These metrics (key performance indicators) are defined and selected by
the business and not by the IT. The final step is to choose the business
performance measurement technology.
We can say that business intelligence it is just business measurement
and not business performance management.
BPM is not a single technology, but rather a combination of elements
– BI, scorecarding, profiling. BI looks at and analyses the past and what
has happened up until today
– this is useful, as planning requires knowledge and you can set planning
goals based on the past. Scorecarding enables you measure how you are
performing against those planned goals.
Every organization has processes in place that feed back to the overall
plan. What’s new with BPM is the integration of these processes,
methodologies, metrics and systems
– an enterprise wide strategy that seeks to prevent organizations from
optimizing local business at the expense of overall corporate
performance.
Any BI implementation is aimed at turning available data into
information and delivering it to the decision makers.
BPM is focused on a subset of the information delivered by a BI system –
the information that shows business performance and indicates business
success or failure and enables organizations to focus on optimizing
business performance.
BPM involves a closed-loop set of processes that link strategy to
execution in order to respond to that task. Optimum performance is
achieved by:
-Setting goals and objectives
– strategize
-Establishing initiatives and plans to achieve these goals
– plan -Monitoring actual performance against the goals and objectives
– monitor
-Taking corrective action
– act and adjust
The key to effective BPM is tying performance metrics to business
strategy, and that means a melding of two areas of technological
functionality: strategic management systems and performance metrics.
The first are systems that manage the key business processes that affect
strategy execution, including objective management, initiative
management, resource management, risk management and incentive
management.
The second is essentially a business intelligence platform for automated
data exchange, reporting and analysis.
BPM should produce three core deliverables:
-Information delivery to enable managers to understand the business.
-Performance oversight to enable them to manage the business.
-Performance effectiveness to enable them to improve the business.
Business performance management must be an enterprise-wide strategy
that seeks to prevent organizations from optimizing local business at the
expense of overall corporate performance
3. Integrating performance management and business intelligence Most
organizations already have a mix of packages and custom built business
intelligence applications, including: strategic performance management
(on top of front office), enterprise analytics for tactical analysis,
operational reports and analytics used to support operational decisions.
The problem is that these three decision levels are separated (in terms
of applications, users, data sources) when what is really needed is for
them to be integrated.
Strategic planning is based on stand-alone scorecard, budgeting and
planning applications that use scorecard databases that hold only
summarized data.
There is no detail to allow executives to drill down and find out why a
problem occurred in a key performance indicator.
Tactical analysis is based on analytic applications, reporting and OLAP
tools delivering analytics based on summary and detailed data stored in
data marts and data warehouses. Operational reports that support
operational decisions are based on detailed databases.
What is needed to manage a business is the combination of strategic
and near real time operational analytics- the integration of objectives
driven business management using scorecards and dashboards at the
strategic level with the business intelligence tools and analytic
applications that support business measurement at tactical and
operational levels (figure 2).

Business intelligence projects must be related to strategic, tactical and

operational business objectives and BPM, enterprise analytics and
operational BI must be integrated into an overall BI framework in order
to effective manage business performance.
4. BPM framework The integration of business and IT process
management and BI is a key enabler for BPM. It provides the ability to
effectively manage the business and achieving business goals.
The BPM framework presented below is based on the integration of
business and IT processes at all decision levels (strategic, tactical and
operational).

Business flexibility and agility require continuous monitoring of the

business processes and support of an appropriate BI environment. An
environment that provides information sufficiently current (near real
time) to support the requirements for both operational and strategic
decision making.
BI technologies and products are evolving in order to provide such an
environment, and we can list only some of the new trends: - linking
business process data to operational activity data for a complete for a
complete view of the enterprise;
- implementation of business rules and Key Performance Indicators to
enable consistent management of the business activities; - automatic
alert generation for proactive problem avoidance rather than reactive
problem impact minimization;
- real time data flow to enable monitoring and proactive management of
business processes. A BI environment that include these capabilities
enables companies to proactively manage their businesses, rather than
just react and adjust to business situations as they arise. The main
objective of BPM is to help companies improve and optimize their
operations across all aspects of their business. But implementing BPM is
much more than just about choosing new technology
– it suppose a constant analyze of business environment to determine if
changes are required to existing business processes. To be successful
 with BPM, a company must fully understand it’s own business processes
and activities that support each area of business.

# The main components of BPM

Business Process Management (BPM) Solution has Six Components

BPM IDE. Business Process Management (BPM) IDE is an integrated design
environment used to design processes, rules, events and exceptions. Creating a
structured definition of each process is very important to any business and the
IDE enables a business user to design all processes with no help from IT.
Process Engine. The process engine of a Business Process Management
solution keeps track of the states and variables for all of the active processes.
Within a complex system, there could be thousands of processes with
interlocking records and data.
User Directory. Administrators define people in the system by name,
department, role and even potential authority level. This directory will enable
tasks to be sent automatically to the defined resources.
Workflow. This is the communication infrastructure that forwards tasks to the
appropriate individual.
Reporting/Process monitoring. Enables users to track the performance of their
current processes and the performance of personnel who are executing these
processes.
Integration. Enterprise Application Integration (EAI) and/or Web services is
critical to BPM as business processes will require data from disparate systems
throughout the organization.

# Four phases of BPM cycle

The Six Phases of BPM

BPM is more holistic than methodologies like Lean and Six Sigma, which focus
solely on process improvement. BPM’s goal is to manage – not just improve
the process. (However, the two processes can be used in tandem to help
eliminate issues in specific processes).
The six phases of business process management, as identified in Villanova’s
Essentials of BPM course, are Assess, Design, Model, Implement, Monitor and
Modify.

 Assess: BPM practitioners should begin by understanding where the

process is currently. This should include establishing and documenting
what occurs with the process, who is responsible for each task, the
length of time the process requires and how often the process is
running.

According to the Essentials of BPM course, the goal of the assessment phase is
to sketch the process flow in its current state and enable stakeholders to
review the data. This should also include any errors and potential
consequences to show business impact.

 Design: The design phase should be high iterative, as BPM practitioners

use the collected data from the assessment phase to design solutions to
process issues. A valuable design reduces problems in the process
lifecycle and offers accuracy and efficiency. Presenting multiple designs
to stakeholders to test them with data and weigh in on the best option is
generally the most effective option.
The Essentials of BPM course suggests using process maps to form ideas
and designing solutions that reduce the number of problems over the
lifecycle of the process.
 Model: In this phase, designs are tested with predictive data. One
important note the Essentials of BPM course conveys: practitioners
should ensure the accuracy of the data in order to obtain valid results.
The goal of the modeling phase is to manipulate variables (such as time,
cost and resources) to understand the outcomes. For example, what the
impact of the process would be if the process reduced the employees
involved from three to two. Or, what would need to occur for the
timeline to move up by one week?

In this phase, stakeholders need to make a decision: based on the potential

outcome models, should a process change be introduced?

 Implement: A significant amount of work goes into implementing

changes that are designed and modeled. BPM practitioners must
develop a detailed change management plan that outlines what
specifically is changing. Keep in mind, this may include job descriptions
and roles, informing customers or suppliers, or updating systems.
Prepare a contingency plan as well, Villanova’s Essentials of BPM course
teaches, as even the best ideas can falter during implementation.

 Monitor: BPM is intended to be an ongoing process, which means

practitioners must continuously assess the process using data
modeling and simulation to consider possible outcomes. They should
also benchmark performance against several data points, including any
key performance indicators (KPIs), employee feedback or overall
objectives. For example, if a new process’ objective was to deliver a
product to the customer two days earlier, but employee feedback
indicates achieving the goal requires substantial overtime, the process
may need to be revisited.
 Modify: In the modify phase, the process should be continually adjusted
based on data to improve outcomes. If changes are required, the
business case should be revisited and the six-step phase cycle should
begin again, starting with the assessment phase.

DEFINING THE BUSINESS PROCESS MANAGEMENT PHASES

The value chain processes are a strategic asset of the organization, so they
must be documented, measured, improved (when necessary), and managed
like any other asset. By following the methodology outlined, managers have
the added advantage of using enabling technology to help execute these
processes more efficiently and effectively.

Business Process Management is a systematic approach to understanding,

improving, and managing an organization. It is generally accepted to have four
phases: document, assess, improve, and manage.
 Stages in the BPM life cycle

A simplified version of the BPM life cycle features the following steps:
modeling, implementation, execution, monitoring, and optimization.

Planning and strategic alignment

The first stage of the BPM life cycle involves gaining an in-depth understanding
of how processes are aligned with the value chain.

Typical activities undertaken in this stage may include:

 Organization profiling
 Identifying primary, management, and support processes
 Noting key performance indicators (KPIs)
 Preparing for process analysis

Primary processes are an organization’s core operations. They directly bring

value to the customers. All processes that involve designing, creating, and
selling of products or services to customers are considered primary.

Secondary processes support the primary processes. Examples include human

resources, IT management, procurement, office administration, and so on.

Management processes involve monitoring primary and secondary processes

to ensure that the organization is meeting overall financial and operational
 goals. These processes also involve activities to ensure compliance with
regulatory guidelines.

Process analysis
In the analysis stage, one needs to observe the process as it is currently
practiced in order to get a complete picture. It has to necessarily precede
modeling if effective changes are to be introduced.

Based on the nature of the processes, the method of analysis chosen may be
qualitative or quantitative. In general, however, the analysis includes
interviewing process performers, analyzing available process documentation,
and arriving at a complete picture of how processes are being executed.

Process design
Observations from process analysis are put to use in the design stage. At this
point, you should have awareness of bottlenecks, lags, and delays in detail.

The important question to answer is whether the process should be retained

as is or redesigned to fix the issues identified. Based on the response, you may
approach it in one of two ways:

 Continuous process improvement wherein the process is accepted in its

current structure and issues are corrected one after another, or
 Redesign, wherein the entire process is remodeled in its entirety.

Once process modeling is complete, new procedures need to be approved. A

deployment plan is created to ensure that relevant process performers are
trained for the changes and transitions are smooth.

Implementing the process

When it comes to implementing the new process design, there are two ways to
execute it: systemic and non-systemic implementation. The former uses
specific software or tools for implementation while the latter doesn’t.

The choice between the two types depends on the nature of the business
process and resources available to the organization.

However, the goal remains the same–to put into practice the workflow
designed in the previous stage.

Process monitoring
In this stage, previously identified KPIs are monitored to ensure that the
process is aligning with the organization’s overarching goals. Here, one would
typically be tracking, measuring, and controlling on a continuous basis.

Some common KPIs that are monitored include the duration of the process,
cost of the process, capacity or how much the process can produce, and errors
or issues that adversely affect customer satisfaction.

Information gained during process monitoring will help you gauge if the
process needs any changes or tweaks and the redesigned process is meeting
goals and objectives.

Process refinement
In the refinement stage, one makes the effort to close the gap between
current performance and the modeled process with carefully measured
changes.

The BPM life cycle is based on the notion of continuous process improvement.
The cycle is repeated as the organization attempts to enhance performance
and boost growth. Here is a 5-step guide to increase process efficiency.

How organizations typically deploy BPM

The BPM life cycle step by step

1- Planning and Strategic Alignment

To get a broad view of business processes in line with the value chain at this
stage we need to examine all available documentation and assimilate how the
processes are aligned to the services provided, customer service, support and
sales management.

For this, four steps must be performed:

 Profile the organization.

 Identify the primary, management and support processes.
 Identify performance indicators.
 Prepare for process analysis.
2- Process Analysis
At this stage of the BPM life cycle it is necessary to observe the processes
exactly the way they are happening in the company at the time, only then can
you get a “picture” that will help modeling and the evaluation of the
organization’s processes.

It is with this analysis of the present moment that you can understand what
could be improved, targeting the following phases of the BPM lifecycle.

These are the steps in this phase:

 Interview the process performers

 Analyze process documentation
 Analyze documentation
 Validate knowledge and documentation

See also Understand and apply the business process analysis methodology

3- Process Design

This is the time to make decisions about everything that was detected in the
previous AS-IS phase.

Now that you are aware of bottlenecks, failures, delays and other
shortcomings from the reporting process (with the greatest possible detail), it
is now time to align with the strategic goals of the company and design a new
process. For this, one can not fail to make simulations based on scenarios and
include the necessary improvements.

The steps of this stage are as follows:

 Analyze gaps and make comparisons

 Design the process and also analyze IT use
 Model the new process. Check out this tool for process modeling.
 Get new process procedures accepted
 Deployment Plan Creation
4- Process Implementation

Implementation is a phase of the BPM life cycle that can be performed in two
ways. Through a systemic implementation, i.e. with the aid of specific software
and technologies, or non-systemic implementation, without these types of
BPM tools.
Regardless of which is used, the goal is the same: to enable and put into
action process implementation as defined and documented in the form of
a workflow.

5- Process Monitoring

Every company has strategic goals. And it is at this stage of the BPM life cycle
that you can find out if the processes are aligned with these objectives or not,
by monitoring appropriate indicators to assess the results obtained.

The most commonly used performance indicators usually involve four

dimensions: the length of process time, monetary cost spent on the process,
Capacity (how much can the process actually produce?) and Quality, which
examines whether there are many errors and variations that affect a
satisfactory delivery to customers in the process.

6 – Process Refinement

This is the beginning of continuous process improvement. By analyzing the

indicators from the previous stage and deciding if the strategic objectives are
being achieved or not, such as if the goals defined from modeling are being
met in relation to the results actually observed in practice.

The refining process can also be called process transformation through

planned development and continuously monitoring measured results. The
focus should be on improving performance, reducing costs and meeting
customer needs and nurturing the relationship with them.

This is why the whole chain of activities is called the BPM life cycle: it always
returns to the beginning!

Now that everything is in place and progressing, analyze the processes again,
ensure they are aligned with the strategic goals and continue refining, always
with the goal of delivering the highest perceived value to the customer, which
generates more profit for the company!

# The purpose of Performance Measurement System

 Planning, Control, and Evaluation - The process of analyzing

measurement in orders to make decisions or evaluations, and is central
 to the operation of an effective and efficient planning, control or
evaluation system.
 Managing Change - Measures must support management initiatives, and
the primary requirement is to integrate measures vertically (across
levels) and horizontally (across functions).
 Communication - Measurement is required to reduce emotionalism and
increase constructive problem solving, increase influence, monitor
progress, and give feedback and reinforce behavior.
 Measurement and Improvement - Reason for measuring is to support
improvement, and at the end provides the scorecard to report on how
well improvement efforts are working - if you cannot measure the
activity, you cannot improve it.
 Resource Allocation - Helps an organization to direct scarce resources to
the most attractive improvement activities - it is a direct stimulus to
action.
 Measurement and Motivation - Performance improve if individuals are
given achievable and challenging targets.
 Long-Term Focus - Appropriate performance measurement can ensure
that managers adopt a long term perspective.

What is the purpose of performance measurement?

Performance measurement is often used as a fairly inclusive term to refer to

the routine measurement of inputs, activities, outputs, outcomes and/or
impacts of an intervention (a project, program, collection of activities or a
policy). The emphasis is on regularly collecting a limited set of data to
determine where improvements can be made.

There are a range of other purposes performance measurement can serve,

such as:

 Accountability – is the organisation doing what it should be doing, at the levels

it should, with the quality it should, and, at the cost levels it should?

 Transparency about results – is the organisation achieving what it should be

achieving, to what extent, for whom?

 Value for money – is the organisation achieving results in the most cost-
effective manner?.
# How organizations need to define the key performance indicators (KPIs) for
their performance management system
Key Performance Indicator (KPI) Definition

A Key Performance Indicator is a measurable value that demonstrates how

effectively a company is achieving key business objectives. Organizations use
KPIs at multiple levels to evaluate their success at reaching targets. High-level
KPIs may focus on the overall performance of the business, while low-level
KPIs may focus on processes in departments such as sales, marketing, HR,
support and others.

So what is the definition of KPI? What does KPI mean? What does KPI stand
for? Here are a couple other definitions:

 Oxford's Dictionary definition of KPI: A quantifiable measure used to

evaluate the success of an organization, employee, etc. in meeting
objectives for performance.
 Investopedia's definition of KPI: A set of quantifiable measures that a
company uses to gauge its performance over time.
 Macmillan's Dictionary definition of KPI: A way of measuring the
effectiveness of an organization and its progress towards achieving its
goals.

1. What makes a KPI effective?

Now that we know KPI stands for key performance indicator it is only as
valuable as the action it inspires. Too often, organizations blindly adopt
industry-recognized KPIs and then wonder why that KPI doesn't reflect their
own business and fails to affect any positive change.
One of the most important, but often overlooked, aspects of KPIs is that they
are a form of communication. As such, they abide by the same rules and best-
practices as any other form of communication. Succinct, clear and relevant
information is much more likely to be absorbed and acted upon.
In terms of developing a strategy for formulating KPIs, your team should start
with the basics and understand what your organizational objectives are, how
you plan on achieving them, and who can act on this information.
This should be an iterative process that involves feedback from analysts,
department heads and managers. As this fact finding mission unfolds, you will
gain a better understanding of which business processes need to be measured
with a KPI dashboard and with whom that information should be shared.
2. How to define a KPI

Defining key performance indicators can be tricky business. The operative

word in KPI is “key” because every KPI should related to a specific business
outcome with a performance measure.
KPIs are often confused with business metrics. Although often used in the
same spirit, KPIs need to be defined according to critical or core business
objectives. Follow these steps when defining a KPI:

 What is your desired outcome?

 Why does this outcome matter?
 How are you going to measure progress?
 How can you influence the outcome?

 Who is responsible for the business outcome?

 How will you know you’ve achieved your outcome?
 How often will you review progress towards the outcome?

As an example, let’s say your objective is to increase sales revenue this year.
You’re going to call this your Sales Growth KPI. Here’s how you might define
the KPI:

 To increase sales revenue by 20% this year

 Achieving this target will allow the business to become profitable
 Progress will be measured as an increase in revenue measured in dollars
spent
 By hiring additional sales staff, by promoting existing customers to buy
more product

 The Chief Sales Officer is responsible for this metric

 Revenue will have increased by 20% this year
 Will be reviewed on a monthly basis

3. What is a SMART KPI?

One way to evaluate the relevance of a performance indicator is to use the

SMART criteria. The letters are typically taken to stand
for Specific, Measurable, Attainable, Relevant, Time-bound. In other words:

 Is your objective Specific?

 Can you Measure progress towards that goal?
 Is the goal realistically Attainable?
  How Relevant is the goal to your organization?
 What is the Time-frame for achieving this goal?

4. Being even SMARTER about your KPIs

The SMART criteria can also be expanded to be SMARTER with the addition
of evaluate and reevaluate. These two steps are extremely important, as they
ensure you continually assess your KPIs and their relevance to your business.
For example, if you've exceeded your revenue target for the current year, you
should determine if that's because you set your goal too low or if that's
attributable to some other factor.
. How to write and develop KPIs

When writing or developing a KPI, you need to consider how that KPI relates to
a specific business outcome or objective. KPIs need to be customized to your
business situation and should be developed to help you achieve your goals.
Follow these steps when writing a KPI:
Write a clear objective for your KPI
Writing a clear objective for your KPI is one of the most important – if not THE
most important – part of developing KPIs.
A KPI needs to be intimately connected with a key business objective. Not just
a business objective, or something that someone in your organization might
happen to think is important. It needs to be integral to the organization’s
success.
Otherwise you are aiming for a target that fails to address a business outcome.
That means that, at best, you’re working towards a goal that has no impact for
your organization. At worst, it will result in your business wasting time, money
and other resources that would have best been directed elsewhere.
The key takeaway is this: KPIs need to be more than just arbitrary numbers.
They need to express something strategic about what your organization is
trying to do. You can (or should be able to) learn a lot about a company’s
business model just by looking at their KPIs.
Without writing out a clear objective, all of this will be lost.
Share your KPI with stakeholders
Your KPI is useless if it doesn’t get communicated properly. How are your
employees – the people tasked with carrying out your vision for the
organization – supposed to follow through on your goals if they don’t know
what they are? Or perhaps worse: Not sharing your KPI risks alienating and
frustrating your employees and other stakeholders who are unable to see the
direction in which your organization is heading.
But sharing your KPIs with your stakeholders is one thing (though even this is
something that too many organizations fail to do). More than that, though,
they need to be communicated in the right away.
KPIs need context to be effective. This can only be accomplished if you explain
not just what you’re measuring, but why you’re measuring it. Otherwise they
are just numbers on a screen that have no meaning to you or your employees.
Explain to your employees why you’re measuring what you’re measuring.
Answer questions about why you’ve decided on one KPI over another. And
most important of all? Listen. KPIs aren’t infallible. Nor will they necessarily be
obvious to all involved. Listening to your employees will help you identify
where your organization’s underlying goals aren’t being communicated
properly
Say you’re getting lots of questions about why profit isn’t a KPI for your
company. It’s a reasonable belief for your employees to have. Making money
is, after all, an essential part of what any business does. But maybe revenue
isn’t the be all and end all for your organization at a given time. Maybe you’re
looking to make major investments into research and development or are on a
major acquisition spree. Getting lots of questions like this is a sign you need to
do a better job of communicating your KPIs and the strategic goals behind
them.
And who knows: Your employees might even give you some ideas on how to
improve your KPIs.
Review the KPI on a weekly or monthly basis
Checking in on your KPIs regularly is essential to their maintenance and
development. Obviously tracking your progress against the KPI is important
(what else would be the point of setting it in the first place?) But equally
essential is tracking your progress so you can assess how successful you were
in developing the KPI in the first place.
Not all KPIs are successful. Some have objectives that are unachievable (more
on that below). Some fail to track the underlying business goal they were
supposed to achieve. Only by checking in regularly can you decide if it’s time to
change your KPIs.
Make sure the KPI is actionable
Making your KPIs actionable is a five-step process:

1. Review business objectives

2. Analyze your current performance
3. Set short and long term KPI targets
4. Review targets with your team
5. Review progress and readjust
6. Most of this we’ve already gone over, but it’s worth focusing on the
need to develop targets for both the short- and long-term. Once you’ve
set a goal with a timeline that’s farther into the future (say the next few
quarters, or your fiscal year) you can then work backwards and identify
the milestones you’ll need to hit on the way there.
7. Let’s say, for example, you want to sign up 1,500 newsletter subscribers
in the first quarter of the year. You’ll want to set monthly, bi-weekly or
even weekly targets to get there. That way you’ll be able to continually
reassess and change course as needed on your way to achieving the
longer-term goal.
8. You could divide the targets up equally according to each month. In this
case that would be 500 subscriptions in January, 500 in February and
500 in March. However you may want to get more specific. There are
more days in January and March than February, so maybe you want to
set a target of 600 for those months. Or maybe you typically get more
website traffic in February (perhaps your business has a presence at a
major trade show) so you decide to set a target of 800 in that month.
9. Whatever it is, make sure you break up your KPI targets to set short-
term goals.
volve your KPI to fit the changing needs of the business
KPIs that never get updated can quickly become obsolete.
Let’s say, for example, that your organization recently started a new product
line or expanded overseas. If you don’t update your KPIs, your team will
continue to chase targets that don’t necessarily capture the change in tactical
or strategic direction.
You may think, based on your results, that you are continuing to perform at a
high level. In reality, though, you may be tracking KPIs that fail to capture the
impact your efforts are having on underlying strategic goals.
Reviewing your KPIs on a monthly (or, ideally, weekly) basis will give you a
chance to fine tune – or change course entirely.
You might even find new and possibly more efficient ways of getting to the
same destination.
Check to see that the KPI is attainable
Setting achievable targets for your team is essential. A target that’s too high
risks your team giving up even before they start. Set a target too low and you’ll
quickly find yourself wondering what to do with yourself once you’ve achieved
your annual goals two months into the calendar year.
An analysis of your current performance is essential. Without this you’re left to
search blindly for numbers that have no root in reality. Your current
performance is also a good starting place for deciding on areas upon which you
need to improve.
Start rooting around in the data you’ve already collected to set a baseline for
what you’ve accomplished in the past. Tools like Google Analytics are great for
this, but so are more traditional accounting tools that track revenue and gross
margin.
Update your KPI objectives as needed
KPIs aren’t static. They always need to evolve, update and change as needed. If
you’re setting and forgetting your KPIs, you risk chasing objectives that are no
longer relevant to your business.
Make a habit of regularly checking in not just to see how you are performing
against your KPIs, but on which KPIs need to be changed or scrapped
completely.
To someone who’s never developed a KPI before, all of this might sound
exhausting.
But here’s the good news: Once you’ve gone through this process a few times,
it’ll be that much easier to use it again in the future.
Bringing it all together
KPIs generally are an essential tool for measuring the success of your business
and making the adjustments required to make it successful.
The usefulness of individual KPIs, though, have their limits.
The most important part of any KPI is its utility. Once its outlived its usefulness,
you shouldn’t hesitate to toss it and get started on new ones that better align
with your underlying business objectives.
6. Using KPIs as part of your performance management frameworks
The most common elements between most performance management
frameworks are setting objectives, measuring performance, and managing all
related activities.
According to classic old adage, Goodhart's Law, "any observed statistical
regularity will tend to collapse once pressure is placed upon it for control
purposes."
Charles Goodhart was an economist in 1975 whose research was used in
helping criticize government decision making processes, specifically with
regards to monetary policy. This concept was then made mainstream
by Marilyn Strathern, “when a measure becomes a target, it ceases to be a
good measure.”
A performance indicator or key performance indicator is just one type of
performance measurement. There are many performance management
frameworks that are both similar yet different. Each of these frameworks
brings forward elements that can be pulled together to help drive success
backed by data. Let's dig in.
Step 1: Aligning Business Strategy
A popular theme in startups these days is the One Metric That Matters
(OMTM). The key takeaway from this simple, yet extremely powerful tool is
that you have to have a thorough understanding of your business model in
order to hone in on that metrics and get the entire organization aligned.
Many will argue that sales is the most important metric when it comes to
measuring the success of a business. The challenge with this metric is the
measured outcome.
Ask yourself: What is the one metric that would help drive more sales?
One answer to this question could be tracking the number of customers who
have integrated your product with 3 other applications. This measure would be
indicative of level of engagement, and their probability of churning would likely
be reduced.
The reason being that once customers are locked in, they churn less which
then creates the right unit economics for the company to grow. So in this case
instead of looking at sales numbers, we would only count a customer if, and
only if, they connected with 3 apps.
This is merely an example, and doesn’t mean that there is only one metric you
should care about! This framework helps with keeping everyone focused on
the one thing they should care about most.
Step 2: Cover all of your bases
With business comes trade offs.
You have probably heard the saying, "You can have cheap, good, or fast. But
you can only pick 2".
Let's start with a classic framework that helps to navigate these trade offs.
The Balanced Scorecard (BSC) helps you break down the key areas of your
business (perspectives) where activities need to be monitored.

The four perspectives that need to be in balance are:

1. Financial Perspective
2. Customer Perspective
3. Internal Business Process Perspective
4. Learning and Growth Perspective

These four key areas of your business are intertwined and all must be aligned.
When one is impacted, there is impact on another, in other words, there will
be a trade off.
Step 3: Putting your BSC strategy framework into action with OKRs
The Balanced Scorecard (BSC) strategy suggests that for each perspective you
develop objectives, measures (KPIs), set targets (goals), and initiatives
(actions). A more recent framework that is getting popularized is the OKR
Framework. Popularized by its use at Google, the OKR (objectives and key
results) framework is used to define and track objectives and their outcomes.
Many would argue that this framework sits in between a KPI strategy and the
Balanced Scorecard approach.
OKRs are used as a performance tool that sets, communicates, and monitors
goals in an organization so that all employees are focused in the same
direction. The system encourages employee success through clear work
objectives and desired key results. The beauty of the system is that it provides
a simple, practical, and straightforward framework for defining, tracking, and
measuring goals, both as something to aspire to and as something that can be
measured.
Step 4: Monitoring with a KPI Dashboard
A KPI dashboard provides you with an at-a-glance view of your business
performance in real-time so you can get a better picture on how the entire
organization is doing.
Common terms found in these frameworks that are worth understanding
include:
Key risk indicator (KRI): a measure used in management to indicate how risky
an activity is. Key risk indicators are metrics monitored by organizations to
provide an early warning of increasing risk exposures in various areas of the
business.
Critical success factor (CSF): is a management term for an element that is
necessary for an organization to achieve its mission. Critical success factors
should not be confused with success criteria. Success criteria is most
commonly used in project management to determine if the project was a
success or not. Success criteria are defined with the objectives and can be
quantified by using KPIs.
Performance metrics: measure an organization's behavior, activities, and
performance at the individual level and not organizational level. For example,
an individual who works in a call centre may have performance metrics such as
Number of Calls Answered, Average Wait Time, Number of Successful Calls
Processed, and Average Length of Call.
Creating good KPIs for your organization is an iterative process.

10 criterion to consider when designing key performance measures

Consider this list of criteria when building out your key business performance
measurement systems:

1. Be based on quantities that can be influenced, or controlled, by the user

alone or in cooperation with others
2. Be objective and not based on opinion
3. Be derived from strategy and focus on improvement
4. Be clearly defined and simple to understand
5. Be relevant with an explicit purpose
6. Be consistent (in that they maintain their significance as time goes by)
7. Be specific and relate to specific goals/targets
8. Be precise – be exact about what is being measured
9. Provide timely and accurate feedback
10.Reflect the “business process” – i.e. both the supplier and customer
should be involved in the definition of the measure

Let's use Tesla as an example

Step 1: Tesla's One Metric that Matters is number of new cars delivered per
quarter. This is a hot topic for investors to measure their success.
Step 2: To build as many cars as possible, while still maintaining quality, Tesla
needs to balance their core assets from their balance scorecard.
Financially: They may make the decision that delivery of cars is more important
than profit in cars.
Customers: Customers have submitted their orders and are waiting for their
delivery, the longer it takes the less excited and more likely they will cancel. So
keeping customers happy is extremely important.
Step 3: Now that we have set some objectives with KPIs we need to set key
results
One KR for customers that is a standard measure in supply chains could be:
Deliver performance (DP) is set at 90% measured as the fulfillment of a
customer promised delivery date.
Step 4: Using a KPI Dashboard to monitor key results
Dashboards often provide at-a-glance views of KPIs relevant to a particular
objective or business process.
7. Three ways KPIs can help build a better team

There is a temptation in the business world to assume that key performance

indicators (KPIs) are the sole purview of “organizational leaders”: CEOs,
presidents, board members and other C-suite executives who make important
strategic decisions.
The reality couldn’t be further from the truth.
KPIs, the principle metrics that define strategic success and act as a yardstick
for areas that might need improvement, are an essential tool for developing
your team and achieving high-quality organization-wide results.
They might even offer an innovative solution to the intractable problem of
employee engagement.
The problem with employee engagement

Employee engagement is something with which many organizations are

struggling. Just 33 per cent of workers in the United States (and a measly 15
per cent worldwide) define themselves as being “involved in, enthusiastic
about and committed to their job and workplace” at work, according to Gallup.
This is profoundly impacting many businesses’ bottom lines. To cite just one
statistic: Organizations with a highly-engaged workforce see an average 20 per
cent increase in sales, Gallup says.
1) Unlocking the power of employee engagement

Employee engagement is one of the most elusive – and misunderstood –

concepts in the business world today.
Many executives are struggling to cope in a world where employee
expectations seem to soar by the day. Workers are more mobile than ever
before, moving between jobs at a pace that would have seemed impossible
only decades ago. In a world where the other side of the fence is as close as a
search on Glassdoor.com and articles about what workplace culture should be
proliferate on LinkedIn, it’s also more informed than ever.
Catered lunches or a foosball table in the break room might be enough to cut it
in some workplaces, but these are at best temporary fixes.
So how, then, can managers breathe life into a disengaged workforce?
There is, of course, no one solution. But one area that should be a bigger focus
is informing employees about, and getting them involved in developing, your
organization’s purpose.
2) The role of KPIs in employee engagement

Here are the three main ways that adopting some KPIs can help your
organization build a better team.
They get everyone pulling in the same direction

One problem with which team-builders perpetually struggle is bringing

together the disparate elements of an organization to focus on key goals. Sales
is worried about the minutiae of drawing in new clients and converting them
into customers. Your product development team is focused in on the latest
technology and trying to get it to market. Your human resources team is
concerned with filling any openings and keeping your workplace engaged.
Adopting some KPIs can help bring it all together.
By focusing in on the key metrics that really underscore business success, you’ll
be able to show your employees the role their work plays beyond just what
they do on behalf of their particular departments.
3) How deciding on KPIs can take your employee engagement to the next
level

 It starts a debate about strategic direction: You’d be surprised about

how few organizations actually articulate their strategic direction in a
clear, codified manner. Instead employees – including some fairly senior
managers – are left to read between the lines to discern their
organization’s strategy. Make money? Sell widgets? “Make a
difference”? Establishing KPIs helps start a discussion about strategy. It
forces you (and your employees) to ask the question: “OK, what is it
we’re ACTUALLY trying to do here?”
 It helps to establish how KPIs connect to strategic goals: Setting out a
bunch of KPIs for your employees and saying “here, achieve these” isn’t
good enough. Without context, KPIs are just a meaningless jumble of
digits. Engaging in an exercise like this one will allow employees to not
only know what the KPIs are, but to see how they connect to an
organization’s end goals.
 It engages employees directly: People like to be listened to! If nothing
else, taking the time to hear about what your employees to say will have
inherent engagement benefits.

# Four balanced scorecards perspectives

1.The Financial perspective
For most for-profit organisations, money comes up tops. (We’ll get to non-
profits later in the article.) Therefore, the very top perspective is all about
financial objectives.
Essentially, any key objective that is related to the company’s financial health
and performance may be included in this perspective. Revenue and profit are
obvious objectives that most organisations list in this perspective. Other
financial objectives might include:
 Cost savings and efficiencies (for example, a specific goal to reduce
production costs by 10% by 2020)
 Profit Margins (increasing operating profit margins, for instance)
 Revenue sources (for example, adding new revenue channels)
The Customer perspective
This perspective focuses on performance objectives that are related to
customers and the market. In other words, if you’re going to achieve your
financial objectives, what exactly do you need to deliver in terms of your
customers and market(s)?
Included in this perspective you might find objectives for:
 Customer service and satisfaction (increasing net promoter scores, or
reducing call centre waiting times, for example)
 Market share (such as, growing market share in a certain segment or
country)
 Brand awareness (for example, increasing interactions on social media)
The Internal Process perspective
What processes do you need to put in place to deliver your customer- and
finance-related objectives? That’s the question this perspective aims to
answer. Here you would set out any internal operational goals and objectives –
or, in other words, what does the business need to have in place and what
does the business need to do well in order to drive performance?
Examples of internal process objectives might include:
 Process improvements (for example, streamlining an internal approval
process)
 Quality optimisation (such as, reducing manufacturing waste)
 Capacity utilisation (using technology to boost efficiency, for instance)
The Learning and Growth perspective
While the third perspective is about the concrete process side of things, this
final perspective considers the more intangible drivers of performance.
Because it covers such a broad spectrum, this perspective is often broken
down into the following components:
 Human capital – skills, talent and knowledge (for example, skills
assessments, performance management scores, training effectiveness)
 Information capital – databases, information systems, networks and
technology infrastructure (such as, safety systems, data protection
systems, infrastructure investments)
  Organisational capital – culture, leadership, employee alignment,
teamwork and knowledge management (for example, staff engagement,
employee net promoter score, corporate culture audits)
# Differences between dashboards and scorecards
Dashboard
Derived from the automobile dashboard, a dashboard is a real-time graphical
user interphase which provides the key performance indicators in a business,
project or process. They are used in gauging the performance of an
organization as well as individual departments. A good dashboard should be
informative, simple and easily accessible hence should take into account
various design practices such as:
 The medium such as mobile, desktop or laptop.
 Visuals including graphs, bar charts, and line charts
 Use of different colors and shapes on visual presentations
Dashboards are classified in accordance with the role played, and include:
 Strategic dashboards- These provide a quick overview of an organizations
performance.
 Analytical dashboards- These include more data in terms of history,
comparisons, performance evaluators and history.
 Operational dashboards
 Informational dashboards
The benefits of using dashboards as key performance indicators include:
 Measure organizations parameters
 Determination of organizational goals and strategies
 The generation of detailed reports
 It enables the management team to gain complete visibility of all systems
 Identification of negative trends
 Align organizational goals and strategies set

Scorecard
This is a framework that is used to align an organization’s strategies with its
objectives by monitoring major metrics based on customer information,
desired growth, financial information, and business processes. It is important
 in the integration of points of control, revising strategies as well as sharpening
processes.

A scorecard is ideal in instances where organizations need to:

 Track the progress of set strategies
 Measure departmental or team effectiveness
 Detail frequent snapshots of various reports
A scorecard, however, is not ideal for real-time updates, automatic analysis
and viewing detail levels.
# The benefits of using balanced scorecard versus using Six Sigma in a
performance measurement system.
Six Sigma

Six Sigma, in its most simple form, is a methodology that allows you to test
your process management, innovation, and improvement, using both empirical
and statistical methods. It emerged out of the quality movement, and takes a
deep look at processes and products and how you can improve them. Six
Sigma helps organize a hierarchy of ‘process experts’ for every level of the
production cycle. If a company uses the Six Sigma methodology, they adhere to
a series of steps that will help them reach one specific goal, like “decrease
amount of material used” or “lower production cost”.
 Six Sigma helps organizations:

 Cut their operational costs, by allowing them to understand what business

processes need optimization.
 Increase productivity and efficiency through the identification of which
processes are successful and which are deficient.
 Improve employee and customer satisfaction once fractured processes are
repaired and improved.
“Processes” can be defined as the most effective and efficient way to get
things done in an organization in order to achieve a goal.

Let’s look at a few practical examples.

If your company creates widgets, your goal is to organize your manufacturing

process in the best, most efficient way possible. You’d do that by laying out
your shop floor properly, which would help ensure the least amount of defects
in the finished widgets.

Or, maybe you’re a delivery company, so you want to focus on the quickest
way to move packages from your facility to their final destination. In that case,
you’d focus on mapping out routes so the drivers would stop at fewer lights,
make fewer left-hand turns, etc.

The Balanced Scorecard

The Balanced Scorecard (BSC) is a strategic planning and management

framework that looks at four perspectives—financial, customer, processes, and
learning/growth—in order to meet and achieve the company’s objectives.

The BSC helps organizations:

 Analyze their operational strategy, which allows them to identify and focus on
the true drivers of long-term success.
 Turn strategy into action by taking four unique perspectives into account,
instead of only paying attention to the financial perspective.
 Align their measures with their mission in order to avoid strategic missteps
that can easily happen when short term measures crowd out long term goals.
BSC is a framework which allows the use of other frameworks within it. It helps
you describe your strategy and assess what you’re doing in an organization and
makes sure all of the elements that make up your organization are working
together efficiently and effectively. When scorecarding is correctly
implemented, organizations will often see better departmental and
organizational alignment with their goals and mission.

Six Sigma Vs. Balanced Scorecard

Despite their differences, these two unique frameworks are not incompatible.
There are organizations that use both—Six Sigma to improve key internal
processes, and the Balanced Scorecard to manage the strategy. Of course,
some practitioners argue that Six Sigma is an be-all, end-all solution, while
others have the same argument for the BSC.

As with anything, HOW you use the tools is almost as important as WHAT tools
you use. Let’s say you let the team tasked with implementing Six Sigma run
around your organization and improve every process they can identify. Not
only is that going to cost you a great deal, but it’s also irrational, because the
team could be improving a process that isn’t strategic. Or that you created a
Balanced Scorecard then never got around to improving broken processes.
Most likely nothing ever got done.

That being said, it is my opinion (and the opinion of many others) that you can
use both of these frameworks together to create an “ultimate” management
solution. For example, Six Sigma deals almost exclusively with internal
processes, which happens to be one of the four perspectives that the Balanced
Scorecard examines. Therefore, the BSC could be used to identify which
processes are important, and Six Sigma could be used to improve those broken
processes.

 Six Sigma is a disciplined, data driven approach and methodology for

eliminating defects in any process. To achieve six sigma, a process must
not produce more than 3.4 defects per million opportunities. A six sigma
opportunity is the total quantity of chances for a defect.
 The balanced scorecard is a strategic planning and management system
that is used extensively in business and industry, government, and
nonprofit organizations worldwide to align business activities to the
vision and strategy of the organization, improve internal and external
 communications, and monitor organization performance against
strategic goals.
 It serves as a framework for integrating performance measures
(proposed by Robert Kaplan and David Norton in 1996 which has
received worldwide attention.)
1. finance
2. Customer
3. Internal business process
4. Learning and growth perspectives
 The balanced scorecard is a framework to describe the strategy for
creating value and tool to manage the execution of that strategy. When
used as the centerpiece of the executive decision process, the BSC
identifies performance gaps and is used to facilitate decisions on how to
address specific performance issues. However, unlike six sigma, the BSC
is not a solution for closing specific strategic performance shortfalls.
 Measuring internal business process performance,or process excellence,
can be through executing an ongoing assessment of process capability
and customer satisfaction with business performance. However, it is
important to understand that process excellence has no regard for
organizational boundaries or functions. Customers view
organizations through their processes and not through
their organizational structures.
 Managing and improving the core operational processes of an
organization is the key to process excellence or performance
management.
 Balanced scorecard and six sigma are complementary because the
‘former’ provides the strategic context for targeted improvement
initiatives and the ‘latter’ is a business improvement approach that can
solve a myriad of performance issues.
 The concept of performance management is the nexus where balanced
scorecard and Six Sigma can join to produce a formidable weapon that
aligns strategic intent with tactical execution.
While financial, customer, process and learning perspectives in
balanced scorecard present a more holistic assessment of non financial
performance, organizations may still need to consider whether these
four perspectives meet their needs today.