Module 3

Part 1
KPI Typology & Taxonomy

KPI Professional Course

By
Dr. Nashwa Elsayed
Clinical Pathologist, Quality & Excellence Consultant
MBBS, MSc, MD, TQM, MQM, CPHQ, CPPS, CSSBB, ISO QMS Lead Auditor, Certified Excellence Assessor
 Module 3 KPI Related Terminology

KPI Typology & SMART Objectives Decomposed

Taxonomy KPI Lifecycle
Leading vs Lagging KPIs
Qualitative vs Quantitative KPIs
Efficiency vs Effectiveness KPIs
KPI Use Case Scenarios
KPI DNA Map
 KPI Typology & Taxonomy

Typology is the study of various traits and types, or the systematic

classification of the types of something according to their common
characteristics.

Taxonomy is a scheme of classification (hierarchical classification), in

which things are organized into groups or types.
 Types of KPIs

• Strategic & Operational

• Short-term & Long-Term
• Lagging & Leading
• Quantitative & Qualitative
• Effectiveness & Efficiency
• Financial & Non-Financial
• Business & Project- Based
• Output & Outcome
 Forms of KPIs

Absolute
Numbers

Indices Percentages

KPI
Rankings Ratios

Ratings
 Organizational Indicators Maturity Model

Less Mature KPI Types More Mature KPI Types

• Lagging • Leading
• Strategic • Operational
• Effectiveness • Efficiency
• Qualitative • Quantitative
• Short-term • Long-Term
• Financial • Non-Financial
• Project- Based • Business
• Output • Outcome

Usually, Organization Move From Left to Right

 The Types of KPIs are Multi-dimensional

We can easily waste too much time worrying about it. It’s more useful to be
clear where, when and how different KPIs should be used.
1. Perspective in Time: Does this KPI help me learn from the past, or decide
what I have to do now, or prepare for what’s likely to happen in the future?
2. Level in the Organizational System: Is this KPI best used by teams whose
work directly influences it, or by managers who can realign resources to
improve it, or by leaders who can realign the organizational system or
culture to achieve it?
3. Focus of Application: Does this KPI monitor strategy or change, assess
compliance or regulation, trigger continuous improvement, flag risk, or
guide routine work?
Using KPIs for their intended purpose is a much better use of time than trying
to put them into buckets.
KPI Related Terminology
 KPI and Measurement Words
Here’s just a sample of the KPI and measurement words that seem
impossible to find a universal terminology definition for:

§ Performance Measure § Objective

§ Metric § Result
§ Performance Indicator § Outcome
§ Key Performance Indicator (KPI) § Output
§ Key Result Indicator (KRI) § Target
§ Lead Indicator (Or Leading Indicator) § Critical Success Factor (CSF)
§ Lag Indicator (Or Lagging Indicator) § Key Result Area (KRA)
§ Strategic Initiative Or Change Initiative § Strategic Theme
§ Strategy § Vision
§ Goal (Strategic Goal, Operational Goal) § Mission
 What is the Definition of ‘KPI’?

David Parmenter, “a performance measure that tells us ‘what to do

to increase performance dramatically’, as opposed to other types
of performance measures.”

Bernard Marr, “KPIs provide a way to measure how well

companies, business units, projects or individuals are performing
in relation to their strategic goals and objectives.”
 What is the Definition of ‘KPI’?

By Contrast, the KPI Library (www.kpilibrary.com) uses the term ‘KPI’ to refer to
any kind of measure at all that a business or organization might use to
monitor its performance.
Now, the term KPI is used generically to mean any kind of
performance measure.
There are still many businesses that define a KPI as a performance standard in
employee position descriptions, against which the employee’s performance is
appraised.

‘KPI’ is just one of the many performance measurement terms that does not have a standardized,
universally accepted definition.
SMART Objectives Decomposed
 The SMART

The SMART acronym is one of the most used phrases in

business. It has its origins in the Goal Setting Theory school
of thought and the Management by Objectives concept. This
approach aims to improve organizational performance by
clearly setting and defining objectives/ goals agreed by both
management and their employees.
 “Toward a theory of task motivation and incentives,”
Conscious Goals Affect Actions

Four general principles designed to motivate and lead to

best performance:
1. Goals should be challenging, however attainable.
2. Goals should be specific rather than vague
3. Employees should be part of the process of setting their
own goals
4. Goals should be measurable and clearly understood
 "There's a S.M.A.R.T. Way to Write Management's Goals and
Objectives"

SMART Objective should meet the following criteria:

ü Specific – target a specific area for improvement
ü Measurable – quantify or at least suggest an indicator of
progress
ü Assignable – specify who will do it
ü Realistic – state what results can realistically be achieved,
given available resources
ü Time-related – specify when the result(s) can be achieved.
a KPI shouldn’t even be called KPI if the smart criteria are not met.
For this reason, the term SMART KPI is in a way doubling down on the
SMART criteria.

we should not use the traditional approach to defining SMART

objectives, but rather ensure that the objective is clearly formulated
and easy to communicate. We will then ensure they are ‘SMART’ once
we add the KPIs to our objective.

This involves decomposing the traditional approach to ensure clear

linkage between performance management Tools, Concepts and
Roles such as KPIs, Targets and KPI Owners, thereby ensuring a clear
understanding of the SMART criteria and its direct application in
organizational contexts.
While there are many examples of objectives that are incompletely
defined and don’t meet the SMART criteria, in the case of KPIs things
are different.
By their own nature and definition,
KPIs are indicators of performance with the following inherent
characteristics:
ü Specific – For the objective/ process/ functional area which it addresses;
ü Measurable – It has to be a metric, therefore it is required to be quantifiable;
ü Assignable – Ownership needs to be assigned to ensure achievement and
improvement;
ü Realistic – Targets set for the KPIs need to be realistic, taking into
consideration available resources, current baselines, benchmarks and market
or industry trends;
ü Time-bound –Targets must have a predefined time, by which they should be
achieved.
For Example,
Ann’s goal is to become a marketer. In order to achieve it, it
is necessary to take into account various factors and perform
many actions: to undergo training, to sharpen the acquired
knowledge in practice, to gain experience in the organization
or in production, to study in detail the specifics of the future
sphere in which she will work.
 What it is and why it is needed?

Decomposition, goals that are difficult to achieve turn into a hierarchy of small
tasks that no longer seem so difficult and impossible to accomplish. Clearly
formulated tasks are much easier to accomplish.
The correct formulation of the goal “Get rich” would mean, “Increase your income
to 6000$ monthly.” Or, “Change profession in 2024 and increase monthly income
to 6000$ monthly”.

The decomposition method is used in science, philosophy, marketing, economics

and other different fields. It is used to analyze complex processes. In forensics,
this research tool is commonly referred to as deduction. The use of goal division
helps to achieve the desired result by focusing on the main thing and with less
risk.
From the point of view of decomposition in building a path and
achieving the goal of a girl may look like this: Enroll in relevant,
targeted courses.
1. To study the theoretical part of the subject and theses.
2. To do this, she should familiarize herself with cases, listen to
thematic lectures, watch videos on the right channels, attend
events on the subject.
3. Practice the knowledge and skills learned every day, several hours
a day.
4. Sign up for a good internship and spend more time in a work
environment to gain practical experience for future work.
The value of the goal in this case is broken
down into individual tasks, which are split
into even smaller steps.
In time management, large goals and tasks
are defined as so-called “elephants”. Agree,
it is physically impossible to “eat an
elephant” (to solve a voluminous task). But,
if you decompose it into separate pieces, as
the goal decomposition teaches, you can
gradually cope with such a huge portion.
Small degrees or simple tasks are called
“steaks” in this case. Ideally, each should
take from a few minutes to 2 hours to
complete.
The number of levels in the decomposition
model depends on the specifics of the
company’s activities. In most cases,
structural decomposition is limited to the
third level. But, in large holdings,
international companies and state structures
the decomposition of tasks can reflect six
levels.

Strategy, global goals of the company are

formed from its mission and values. Then
tactical and functional tasks are formed
from them.
 How Decomposition helps in Business

This method is widely used in modern time management and project

management. It is indispensable when solving complex tasks and
working on large-scale team projects.

The decomposition technique is used in the development of interfaces

in the IT industry. It can be fully implemented in sales and
administration.
 This Tool Helps
Ø To make sure that it is realistic, possible to realize the set tasks.
Ø Break down a large object, a goal into individual elements, present
the order in which each step should be accomplished.
Ø Prioritize properly, focusing on the major, serious matters first.
Ø Calculate how much time is needed to accomplish each item on the
list.
Ø Prepare the resources that will be required to accomplish the task at
hand.
Ø Schedule reserve time for time-consuming and difficult assignments.
Ø Select performers with appropriate qualifications and knowledge for
the job.
Ø Evaluate the quality of their execution, make sure that the chosen
direction is correct. Replace and make adjustments if necessary.
 Advantages of Using The Decomposition Method

The decomposition method makes it easier to work on complex goals

and projects. It is impossible not to talk about its other advantages:
ü Easier orientation to goals and objectives. By breaking down the
global goal into components, you can track your progress, learn
from your experience, and adjust your direction as needed.
ü Competent allocation of resources needed to achieve the goal.
Implies that large tasks are difficult to work with. There are always
doubts: where and how to start. When they are related to simple
and clear, it is easier to distribute them among the performers.
 Decomposition has 2 types, it happens:

Ø Horizontal, with division by levels, components and types of work.

In this division of tasks there is no specification of each step.
Therefore, the result in this case can be visualized only after all
steps are completed.

Ø Vertical, with in-depth detailing of processes from the top level to

the bottom level. Each task is done individually, obtaining a
certain result. This option is more convenient to use, as each step
can be analyzed separately, making the necessary adjustments at
any time.
 Levels, decomposition rules

When planning, several levels of decomposition are distinguished. At the zero

level there is the main objective. An example of a global objective is the
development of an application for mobile devices.

At the first level, enlarged blocks and components are allocated. In this case, it
will be the platform for the future application: Android and iOS.
On the second level, large blocks are divided into subtasks. Example: view of the
main game screen depending on user scenarios.
At the third level, further fragmentation of tasks takes place. That is, the
development of separate blocks (authorization, payment options, animation
effects, etc.).
 Dividing The Goal Into Steps

This is the easiest way to perform decomposition. Having formulated

the main goal, it is written down on paper or in a special electronic
application. Underneath the main goal are the tasks that need to be
performed to realize this goal with dates. Within the tasks, you can use
additional means to specify actions: checklists, shopping lists or other
elements.

Tasks are linked in stages in a horizontal or vertical direction.

 Dividing The Goal Into Steps

When breaking down tasks into separate steps, you need to follow a
few important rules:
• The duration of each step should be no more than 120 minutes.
• Sub-tasks should have the clearest and clearest possible wording
with a specific performance indicator in the form of a finished
product.
• To effectively perform the main task, it is necessary to competently
distribute the tasks included in it among the performers.
 Conclusion
Decomposition is a universal way of working on complex, large-scale
projects. This method is convenient to use for planning and effective
task setting. By applying this time management tool, “break down” all
the work processes of a project, making them understandable and
realistically achievable.

By visualizing goals and understanding what movements need to

make on the way to achieving them, it is much easier to achieve the
most complex strategic goals. Moreover, this technology applied in
any area of life: for business development, creating new products,
increasing sales or achieving personal results.
KPI Lifecycle
 KPI Lifecycle

Key Performance Indicators (KPIs) also have a lifecycle with a similarly

cyclic pattern: from definition to collection to set composition to
implementation to assessment and back to definition.

Who use KPIs naturally implement this lifecycle, but there is some real
value to clearly and carefully articulate the elements of the lifecycle.
 KPI Lifecycle Element 1:
Definition

There are probably tens of thousands of different KPIs used, one might think that
all the KPIs that need to be defined have been defined.

To be sure, KPIs like Quality Ratio, Overall Equipment Effectiveness Index, Scrap
Ratio, and Rework Ratio are not going to go away any time soon, but KPIs may
sometimes need to be redefined as a more focused or aggregate KPI.

Furthermore, as corporate objectives change over time, KPIs change because

corporate objectives drive the definition and use of KPIs. it’s important to follow
good KPI definition practices, otherwise interoperability will suffer throughout the
process chain..
 KPI Lifecycle Element 2:
Collection

Collection consists largely of excluding obvious outlier KPIs from

consideration like irrelevant KPIs. Still, one can easily end up with far
too many candidate KPIs.

Keep in mind that humans typically monitor KPIs, but humans can only
comprehend and process five to nine distinct items simultaneously
Therefore, we have a need for KPI set composition.
 KPI Lifecycle Element 3:
Set Composition

KPI Set Composition, which is substantially more complicated than KPI

collection. The following guidelines should be followed:
• Select appropriate KPI performance criteria
• Follow the “seven plus or minus two” rule for the number of KPIs
selected
• Find the sweet spot between detailed versus aggregate KPIs
• Ensure that the chosen KPIs satisfy all the stated critical objectives
of the process
• KPIs need to be generated.
 KPI Lifecycle Element 4:
Implementation

Implementation starts with a selected set of KPIs that will keep the
process operating optimally in the face of variation. These chosen
KPIs can now be properly implemented within the target process.
The stakeholders need to:
• Ensure that the KPIs implemented are accurate, actionable, aligned,
documented, independent, inexpensive, predictive, quantifiable,
relevant, standardized, timely, traceable, understandable,
verified, and have buy-in from stakeholders
• Ensure that candidate KPI sets satisfy critical objectives and that
set size is kept small
 KPI Lifecycle Element 4:
Implementation

• Define and implement stakeholder training

• Define and conduct process performance assessments, examining
KPI values and trends periodically
• Define procedures for handling changing circumstances such as
customer requirements, KPI definitions, new stakeholders, etc.
• Define procedures for utilizing knowledge about KPI-to-KPI
relationships and dependencies, and for describing action plans for
improving process control from KPI values
 KPI Lifecycle Element 5:
Assessment

The final activity in the lifecycle is KPI Assessment.

This is when stakeholders take time to examine how relevant the KPIs
are performing (different than process performance). It is also the time
to examine how well have the KPIs been implemented.
KPI Assessment is typically done over longer time spans compared to
assessment of KPI values.
 KPI Lifecycle Element 5:
Assessment

The following are the key elements in the assessment:

• Determine how well the KPIs align with current performance objectives for the
process
• Determine how well the KPIs perform with respect to the criteria
• Take these results and generate a prioritized list of action items by {KPI,
criterion} pairs formed by measuring the importance of the KPI to the process.
• list how well the KPI performs with respect to the criteria.
• Plot the {KPI, criterion} performance with the {KPI, critical objective}
performance and assess ways to improve the performance of the KPIs.
 Benefits of Accurate & Detailed Model KPI Lifecycle

ü Enables efficient and effective

performance management
ü Enables a industry of performance
methods and software tools
ü Provides a basis for open standards on
KPI use
ü Assuming the target processes have been
identified