American International University Bangladesh (AIUB)

Group 4

Submitted by: 

Mahatab Hossain, ID: 20-91765-2 

Lamia Maknuna, ID: 20-91824-3
Farah Saqueeba, ID: 20-91708-2

Program: MBA 

Performance Management
Section: A

Submitted to:

Dr. Rezbin Nahar

Associate Professor  
American International University Bangladesh (AIUB) 

Date of Submission: 16 August 2021

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1. What Is A Key Performance Indicator (KPI)?

Managing employee performance and the daily performance of a business is hard work. A business will
often use metrics to estimate employee performance measure progress towards specific goals.
Employee performance goals should be clear and aligned with the business strategy, and should specify
what measure will be used to evaluate and improve business outcomes. Individual employee Key
Performance Indicators (KPIs) are metrics that can assist in tracking the ability of your employees to
meet your expectations as well as their impact on the business objectives.

KPIs are not goals, they are a means to express what you want to achieve and when in order to reach
the goal, and to assess and manage employee performance. They are a tool to meet business outcomes,
review business health and growth, and a way of identifying new opportunities for the business.

At an employee level, they can be used to measure performance and manage underperforming staff
members, structure incentive payments such as bonuses, and also identify training opportunities to
upskill the workforce. KPIs can be included in the employee position description and will help set the
expectation between employer and employee.

Measuring employee performance is an essential part of assessing your business’ financial health. Since
your people are your biggest asset, you need to ensure your investment in them is actually paying off.
We’ve put together some of the best universal KPIs businesses can use to quickly check high-level
employee productivity and effectiveness.

2. What are the KPIs for performance management?

First, your organization needs to choose KPIs that measure the appropriate activity for each area of the
business.

For example, net profit is a standard KPI for an organization's financial performance. It's easy enough to
calculate (total revenue minus total expenses), and you know that the higher it is, the better the
company is performing.

Others may be harder to calculate. A customer satisfaction KPI, for example, may require regular,
carefully constructed customer surveys to build the right amount of data. You'd then have to decide
what sort of customer satisfaction score represents the benchmark you want to achieve.

Setting SMART KPIs

Whatever the nature of your KPIs, you need to make sure that they're SMART. This stands for:

Specific: be clear about what each KPI will measure, and why it's important.
Measurable: the KPI must be measurable to a defined standard.

Achievable: you must be able to deliver on the KPI.

Relevant: your KPI must measure something that matters and improves performance.

Time-Bound: it's achievable within an agreed time frame.

When you finalize a KPI, it should fulfill all of these SMART criteria.

3. How do you use KPI to measure employee performance?

The value of employee performance KPIs

Make no mistake – these KPIs should not be used as the basis for assessing the individual value of your
employees. Performance appraisals depend on a broad application of qualitative and quantitative
feedback which doesn’t just focus on profit. Your employees’ worth cannot be reduced down to a
number, and that is not the purpose of these KPIs.

These employee KPIs are purely intended as high-level markers to indicate overall employee
profitability. They allow businesses – and agencies in particular – to quickly identify potential problems
needing further investigation, which are often the result of wider operational issues and workflow
bottlenecks.

Universal employee performance KPIs

Here are some of the best universal KPIs we’ve come across:

Revenue per employee

= Revenue/number of employees

This is the most basic indicator of what each employee brings in. It’s useful for ensuring your workforces
aren’t costing you more than they’re making you. It’s often used to gauge the profitability of companies.

Profit per employee

= Total profit/number of employees

Similar to the above, this employee performance KPI breaks down raw profitability (free from expenses),
which may be useful for companies with remote or freelance workers who don’t incur the same
expenses as in-house employees.

Employee billable percentage

= (Total weekly billable hours logged/total weekly hours logged) x 100

Also known as a "utilization rate", this KPI shows you the overall ratio of directly profitable work to
internal cost each employee engages in. Different companies have very different stances on the value
relationship between “billable” and “non-billable” time, and we’re of the opinion they are equally
important. However you view it, you need to see how much time your team spends on non-billable time
to maintain a healthy balance.

Average task completion rate

= Total time to complete the same task (across set timeframe)/number of times performed

Again, this should be taken as a rough guide to inform the overall efficiency of your team. It’s useful for
understanding how long different phases of a project usually take your employees, so you can improve
budget estimates and price fairly for your work.

Overtime per employee

= Total hours overtime/number of employees

The average overtime metric can be interpreted in a whole of different ways. Some companies use it to
understand the health of their employees – both in terms of engagement and physical wellbeing. But it
shouldn’t be taken as an indicator of employee dedication, since “presenteeism” alone doesn’t translate
to “quality of work” or “enthusiasm”. If your staff are constantly performing overtime, you might
actually need to increase your workforce. In the interests of your company culture – whether you
embrace or reject overtime – it’s a good idea to keep an eye on it.

Employee capacity

= weekly capacity - total hours logged

Employee capacity is a great measure of productive performance. Similar to overtime, it shows you who
is close to burnout and who has room to take on a little more work. It’s super helpful for distributing
work evenly across your team and understanding who needs extra support.
How to track employee performance KPIs

Many companies work across complex Excel sheets to get the figures to track these employee KPIs. But
apps do exist to track them for you in the background.

Automatic time trackers like Timely can track all of the figures needed to work out the above KPIs while
you work. They log the time spent on different tasks and projects, show logged time against an
employee’s weekly capacity, and break down billable vs. non-billable time in a simple dashboard.

4. What are the five key performance indicators?

There are at least a dozen valuable KPIs (Key Performance Indicators) to consider. We’ve selected the
top 5 based on the Association of Fitness Studios (AFS) research, which is a valuable resource to gain a
full understanding of the flow of your business.

The graph shown below, from the Association of Fitness Studios 2016 Operating & Financial
Benchmarking Report details the KPIs of primary focus for fitness studios of all sizes and disciplines.

1 – Revenue per client/member (RPC)

Average revenue per user measures the amount of money that a company can expect to generate from
an individual customer. It's calculated by dividing the total revenue of the business by its total number
of users

The most common, and probably the easiest KPI to track is Revenue Per Client – a measure of
productivity. A simple calculation (annual revenue divided by number of clients).

For example, you generate $300,000 annually and you have 300 clients, then your RPC is $1,000, roughly
the industry average.

2 – (ACA)

Average revenue per user measures the amount of money that a company can expect to generate from
an individual customer. It's calculated by dividing the total revenue of the business by its total number
of users

If classes are full or nearly so, it indicates a highly desired class, and theoretically, a profitable class.

At the other end of the spectrum, some classes are not quite as full. It’s incumbent on the owner to find
out why; often an elusive answer. It’s key to know the difference between:
·A bad class

·A bad instructor

·A bad day or time

3 – Client Retention Rate (CRR)

Customer retention rate measures the number of customers a company retains over a given period of
time. It's expressed as a percentage of a company's existing customers who remain loyal within that
time frame.

Retention - the percentage of clients you retain - is critical to long-term profitability. In many ways, it’s
the most important KPI of all because it measures how well you’re delivering on your brand promise.

Typical CRR for the studio industry is roughly 72%. So, what do you do to increase that number?

Focus on marketing strategies, tactics, messaging, time and expenditure along with ongoing sales
efforts. Retain your clients by:

·Deliver what you promised.

·Make sure those who work in your studio (whether employee or independent contractor) have
embraced your vision.

·Understand why clients are leaving. Do exit interviews. Let them know you value their opinion.

4 – Profit Margin (PM)

Profit margin gauges the degree to which a company or a business activity makes money, essentially by
dividing income by revenues.

If it costs you more to generate the revenue than the revenue you generate – that’s a negative PM and
your business is not long for this world. That is, unless you’re incredibly well financed and have deep
pockets.

5 – Average Daily Attendance (ADA)

The total number of days of student attendance divided by the total number of days in the regular
school year. A student attending every day would equal one ADA. ADA is not the same as enrollment,
which is the number of students enrolled in each school and district.
There are lots of methods to achieve your ADA goal. Give away free promo items, run special
promotions, bring a friend, special this or that are all ideas. But be careful. While there’s validity to ADA
as a marketing strategy, make sure there’s a sales acquisition strategy to support it.

The main purpose of Key Performance Indicators is to drive the performance of your business. KPIs are
capable of letting you bring about instantaneous changes to the segments of the business that may be
underperforming and also offer crucial information on sales, marketing, finances and productivity. But
this is only possible if you take time to select the right KPIs for your firm. Choosing the proper
performance indicators is the first step toward quantifiable improvement, and you must consider
several things before you do so for your enterprise.

5. How do you calculate KPI for performance management for both employees and business?

Key performance indicators are a communication tool for organisations. They inform business leaders
of their organisation's progress towards reaching key business objectives. KPIs are able to provide this
information because they actually track the most important performance measures, which can be
taken together to represent how successful you are in achieving an objective. This information
channel is extremely valuable as, in a well-designed strategy, an organisation's key business objectives
should have a direct impact on the organisation's overall performance. Therefore, KPIs will
communicate whether your activities are achieving, for example, business growth at the rate
expected or not, and how much growth you have actually achieved.

The following are some ways in which you can select the perfect KPIs:

1. Have a clear business goal in mind

Since KPIs help measure progress made toward your business goals, you must have a very clear idea
about what you really wish to achieve. Only by setting precise goals for yourself can you define your
KPIs. Thus when you set out to define goals for your business, you must focus on hard or solid figures,
for example: “Boost sales by 20% in the next 12 months” or “Improve conversion rate by 5% in the next
6 months” and so on. Besides business goals, you must also set clear goals for teams and individuals as
well. This helps your employees work harder to achieve the exact figures in a given time period.

2. Select performance indicators that are directly linked to your business goals

You must choose those performance measures that can offer you insight into the progress made by your
business in a given period of time. This progress is always relative to a business goal and hence you must
make sure your KPIs are aligned with the goals. For example, if your goal is to improve sales by 20% in
the next year, then your KPIs must include conversion rate, daily sales and website traffic, etc. On the
other hand if your intention is to increase conversion rate by 5% in the next 6 months, then your KPIs
must include daily sales, price trends, and retention rate, etc.

3. Select KPIs with mandatory characteristics

When selecting KPIs, make sure that they meet certain mandatory characteristic requirements. A
description of the most important ones has been provided below.

KPIs must be measurable.

Key performance Indicators must be measurable and quantifiable. This is the most basic feature that
every KPI must have, irrespective of the industry or company in which it is used. If a metric is unable to
measure performance or success of an activity or business as a whole, then it doesn’t serve its inherent
function and must not be utilized. KPIs must be able to gauge, evaluate and offer solid results.

Consider the business’s growth stage.

Some metrics may prove to be more important than others, depending upon the growth stage in which
your business currently is. If your business is a start-up, then you must choose metrics that are
associated with business model validation, whereas if it is in its established stages, then you must select
metrics like customer lifetime value and cost per acquisition.

If you run a service-based business, then you must consider your workers as a KPI as well. For businesses
such as yours, the labour is the biggest area of expense. If you consider it as a performance indicator;
you can manage the costs of staff better, thereby boosting overall performance. Thus in order to make
crucial decisions, you must create useful labour data and reports in a timely manner. The reports must
consist of aspects like realization rate, utilization, and gross profit margin.

4. Consider the consequences of choosing particular KPIs for your business

It is very important to follow a systematic approach when choosing KPIs. Avoid selecting KPIs without
considering the consequences that they can produce. For example, a certain KPI may help you measure
the performance of a particular activity but it could indirectly be affecting other aspects of performance
and hence must be avoided. A well-planned and researched approach must be followed when
shortlisting the performance indicators.

5. Keep the list of KPIs concise (avoid unnecessary metrics)

Your list of KPIs must be kept short and effective. Having too many metrics can make evaluation of
actions complex and may confuse your employees. Measure only that data which really matters to your
organization and can help you make improvements. Remember that it may take time to narrow down
your list of indicators but it will prove worthwhile. The optimal number of KPIs that you must have is
about 5–9. Anything more than this will make you lose focus on the important variables. Thus, eliminate
unnecessary metrics.

6. Understand and determine leading and lagging performance indicators

Another step to choosing your KPIs is to know and understand the differences between leading and
lagging indicators.

Lagging indicators — these are indicators which measure the overall performance of the business and
are backward-focused or trailing in nature. This means that they help to evaluate performance
information which has already been captured. Everything you wish to monitor will have lagging
indicators, such as number of sick days, returns on investments and even the number of bags moved in a
single day, etc.

Leading indicators — these indicators are considered as business drivers since they point to the direction
in which things are moving. They change quickly and come before an upcoming trend. For every
business, identification of leading indicators is important as far as the strategic plans are concerned.
They must be chosen carefully and should be unique to your business environment.

7. Avoid getting caught up in the numbers game

The total number of likes, the number of page visitors, the percentage of increase in signups and other
such numbers can really capture you in a net and make it difficult for you to see the larger picture. Your
focus must always be on the quality and not the quantity since the most important parts of businesses
are often not measurable. It is easy to get caught up in the number game of KPIs but you need to move
forward from vanity metrics and concentrate on what really matters. Ask yourself if a slight increase in
the 'Likes' on your Facebook page would really affect your success.

8. Know where your money is going

Another point that can help you in selecting the right KPIs for your business is to consider exactly where
your money is going. It is a good idea to determine the areas where you are spending your money and
then find out if these areas are linked to the goals of your business. Also, see if a KPI can be associated
with these goals. The basic idea behind knowing the direction of the flow of money is to be able to
choose only those KPIs which can keep a check on your expenses.