scorecard and kpis 101
Post on 23-Jan-2015
252 Views
Preview:
DESCRIPTION
TRANSCRIPT
SCORECARD AND KPIS 101
Based on www.bscdesigner.com/scorecard-and-kpis-101.htmBy Aleksey Savkin, bscdesigner.com
BSC DESIGNER
NOT ALL INDICATORS ARE KPIS
• It doesn’t make sense to call something “KPI” until a business context is defined.
BSC DESIGNER
NOT ALL INDICATORS ARE KPIS
• It doesn’t make sense to call something “KPI” until a business context is defined.
• But I’ll be using the “KPI” term as it is more popularized.
BSC DESIGNER
NOT ALL INDICATORS ARE KPIS
• It doesn’t make sense to call something “KPI” until a business context is defined.
• But I’ll be using the “KPI” term as it is more popularized.
• These aspects were discussed before… in the guide “from quantification to a metric”
BSC DESIGNER
WHAT PROBLEMS ARE KPIS AND A SCORECARD SUPPOSED TO SOLVE?
• Indicators are numerical values that are linked to some kind of process.
BSC DESIGNER
WHAT PROBLEMS ARE KPIS AND A SCORECARD SUPPOSED TO SOLVE?
• Indicators are numerical values that are linked to some kind of process.
• Their primary goal is to show a number that can give us an idea about the current performance.
BSC DESIGNER
WHAT PROBLEMS ARE KPIS AND A SCORECARD SUPPOSED TO SOLVE?
ON INDICATOR LEVEL:
• Show the current value.
BSC DESIGNER
WHAT PROBLEMS ARE KPIS AND A SCORECARD SUPPOSED TO SOLVE?
ON INDICATOR LEVEL:
• Show the current value.• Introduce the performance function
BSC DESIGNER
WHAT PROBLEMS ARE KPIS AND A SCORECARD SUPPOSED TO SOLVE?
ON INDICATOR LEVEL:
• Show the current value.• Introduce the performance function• Interpret the value of an indicator on a
baseline/target scale.
BSC DESIGNER
WHAT PROBLEMS ARE KPIS AND A SCORECARD SUPPOSED TO SOLVE?
ON SCORECARD LEVEL:
• Group indicators into categories.
BSC DESIGNER
WHAT PROBLEMS ARE KPIS AND A SCORECARD SUPPOSED TO SOLVE?
ON SCORECARD LEVEL:
• Group indicators into categories. • Specify the relevant importance.
BSC DESIGNER
WHAT PROBLEMS ARE KPIS AND A SCORECARD SUPPOSED TO SOLVE?
ON SCORECARD LEVEL:
• Group indicators into categories. • Specify the relevant importance.• Calculate the performance of category.
BSC DESIGNER
WHAT PROBLEMS ARE KPIS AND A SCORECARD SUPPOSED TO SOLVE?
ON SCORECARD LEVEL:
• Group indicators into categories. • Specify the relevant importance.• Calculate the performance of category.• Calculate the total performance.
BSC DESIGNER
INDICATOR LEVEL
THE VALUE OF AN INDICATOR
530 $
20 hours/week
BSC DESIGNER
THE VALUE OF AN INDICATOR
530 $
20 hours/weekNumeric value
BSC DESIGNER
THE VALUE OF AN INDICATOR
530 $
20 hours/weekNumeric value Measure unit
BSC DESIGNER
THE ROLE OF THE PERFORMANCE FUNCTION
• What the value “530$” means?
BSC DESIGNER
THE ROLE OF THE PERFORMANCE FUNCTION
• What the value “530$” means?
• Is it a high or low?
BSC DESIGNER
THE ROLE OF THE PERFORMANCE FUNCTION
• We need a measurement scale !
BSC DESIGNER
VALUE
TIME
We need a measurement scale !
BSC DESIGNER
VALUE
TIME
MaxMax – means the maximal possible value of an indicator
We need a measurement scale !
BSC DESIGNER
VALUE
TIME
MaxMax – means the maximal possible value of an indicator
Min Min – means the minimal possible value of an indicator
We need a measurement scale !
BSC DESIGNER
VALUE
TIME
Max
Min
We need a measurement scale !
BSC DESIGNER
THE PERFORMANCE OF AN INDICATOR CAN BE CALCULATED AS
Performance (Value), % = x 100%(Value – Min)
(Max – Min)
BSC DESIGNER
In our example:
Value = 530Min = 0Max = 600
THE PERFORMANCE OF AN INDICATOR CAN BE CALCULATED AS
BSC DESIGNER
THE PERFORMANCE OF AN INDICATOR CAN BE CALCULATED AS
Performance (Value), % = x 100%
= 88%
(530– 0)
(600 – 0)
BSC DESIGNER
The performance function of KPI
Source: www.bscdesigner.com
Performance (Value), % = ((Value – Min) / (Max – Min)) * 100%
With a linear growth of the “value” the performance will also grow linearly
THE PERFORMANCE FUNCTION IS NOT ALWAYS LINEAR
!BSC DESIGNER
THE PERFORMANCE FUNCTION IS NOT ALWAYS LINEAR
• For example, the performance might grow very slowly in the beginning, but then increase rapidly
BSC DESIGNER
The performance function of KPI
Source: www.bscdesigner.com
Performance (Value), % = Power(Value,10) / Power(Max, 10)
The performance might grow very slowly in the beginning, but then increase rapidly.
Performance (Value), % = x 100%Power (Value,10)
Power (Max, 10)
THE PERFORMANCE FUNCTION IS NOT ALWAYS LINEAR
BSC DESIGNER
WITH THE INCREASE OF THE VALUE THE PERFORMANCE MIGHT BE
DECREASING
!BSC DESIGNER
WITH THE INCREASE OF THE VALUE THE PERFORMANCE MIGHT BE
DECREASING
• For example, the more waiting time there is in the support center, the lower is its performance.
BSC DESIGNER
The performance function of KPI
Source: www.bscdesigner.com
Performance (Value), % = ((Max – Value) / (Max – Min)) * 100%
With the increase of the value the performance might be decreasing as well.
Performance (Value), % = x 100%(Max – Value)
(Max – Min)
WITH THE INCREASE OF THE VALUE THE PERFORMANCE MIGHT BE
DECREASING
BSC DESIGNER
CALCULATING THE PROGRESS
• Sometimes it is necessary to focus attention on a very specific part of the performance interval.
BSC DESIGNER
VALUE
TIME
Max
Min
CALCULATING THE PROGRESS
BSC DESIGNER
VALUE
TIME
Max
Min
CALCULATING THE PROGRESS
Planning horizonHistorical
valuesBSC DESIGNER
VALUE
TIME
Max
Min
CALCULATING THE PROGRESS
Planning horizonHistorical
values
Baseline
Target
BSC DESIGNER
VALUE
TIME
Max
Min
CALCULATING THE PROGRESS
Planning horizonHistorical
values
Baseline
Target
“Min” and “Max” are used to calculate the performance of
the KPI.
BSC DESIGNER
VALUE
TIME
Max
Min
CALCULATING THE PROGRESS
Planning horizonHistorical
values
Baseline
Target
“Min” and “Max” are used to calculate the performance of
the KPI.
The performance answers the question: “What is the overall performance of the
KPI?”
BSC DESIGNER
VALUE
TIME
Max
Min
CALCULATING THE PROGRESS
Planning horizonHistorical
values
Baseline
Target“Baseline” and “Target” are used to calculate the progress.
BSC DESIGNER
VALUE
TIME
Max
Min
CALCULATING THE PROGRESS
Planning horizonHistorical
values
Baseline
Target
“Baseline” and “Target” are used to calculate the progress.
The progress answers the question: “To what extent was the target achieved?”
BSC DESIGNER
THIS MIGHT SOUND A LITTLE BIT COMPLICATED TO DO…
• This might sound a little bit complicated to do if you use MS Excel or similar software
• A professional scorecard software, like BSC Designer will automate these tasks for you.
BSC DESIGNER
SCORECARD LEVEL
THE RELEVANT IMPORTANCE OF KPIS
A support center has two KPIs:
– “Average email response time,” hours
BSC DESIGNER
THE RELEVANT IMPORTANCE OF KPIS
A support center has two KPIs:
– “Average email response time,” hours– “First contact resolution rate,” %
BSC DESIGNER
THE RELEVANT IMPORTANCE OF KPIS
A support center has two KPIs:
– “Average email response time,” hours– “First contact resolution rate,” %
What KPI is more important?
BSC DESIGNER
THE RELEVANT IMPORTANCE OF KPIS
• A company can make ”Average email response time” equal to 10 minutes,
BSC DESIGNER
THE RELEVANT IMPORTANCE OF KPIS
• A company can make ”Average email response time” equal to 10 minutes,
• But this will not make customers happy, as the “First contact resolution rate” will be very low.
BSC DESIGNER
THE RELEVANT IMPORTANCE OF KPIS
• A company can make ”Average email response time” equal to 10 minutes,
• But this will not make customers happy, as the “First contact resolution rate” will be very low.
• Good response time is important, but what is more important is the high quality of the answers.
THE RELEVANT IMPORTANCE OF KPIS
• To reflect this idea we need a concept of “weight” :
– “Average email response time,” hours– “First contact resolution rate,” %
BSC DESIGNER
THE RELEVANT IMPORTANCE OF KPIS
• To reflect this idea we need a concept of “weight” :
– “Average email response time,” hours; weight = 4– “First contact resolution rate,” %; weight = 6
BSC DESIGNER
THE RELEVANT IMPORTANCE OF KPIS
• To reflect this idea we need a concept of “weight” :
– “Average email response time,” hours; weight = 4– “First contact resolution rate,” %; weight = 6
Now we know that “First contact resolution rate” is more important than “Average email response
time.”
BSC DESIGNER
CALCULATING THE TOTAL PERFORMANCE
• The performance of a category can be calculated by taking in account the performance values of each indicator and their weights.
BSC DESIGNER
CALCULATING THE TOTAL PERFORMANCE
• Here we have the structure of the scorecard C1..4 – are categories. Metric-i,j are indicators together with their weight and performance values:
BSC DESIGNER
CALCULATING THE TOTAL PERFORMANCE
• Let’s convert this into a different notation:
BSC DESIGNER
CALCULATING THE TOTAL PERFORMANCE
• We had our weight on a scale 1..10, so before moving ahead we need to calculate a normalized weight:
BSC DESIGNER
CALCULATING THE TOTAL PERFORMANCE
• The total performance value for the selected category is be calculated as:
Where: – Ni is the number of metrics on i-level;
– NWi,j – is a normalized weight of j-metric on i-level;
– NSi,j – is a performance of j-metric on i-level.BSC DESIGNER
CALCULATING THE TOTAL PERFORMANCE
• The final formula for the total performance index of the scorecard will be:
Where M is a number of categories.
BSC DESIGNER
CALCULATING THE TOTAL PERFORMANCE
• These calculations are simple if you don’t have subcategories in your scorecard.
BSC DESIGNER
CALCULATING THE TOTAL PERFORMANCE
• These calculations are simple if you don’t have subcategories in your scorecard.
• If you had subcategories, the weight of these subcategories should be taken into account in a similar way.
BSC DESIGNER
CALCULATING THE TOTAL PERFORMANCE
• These calculations are simple if you don’t have subcategories in your scorecard.
• If you had subcategories, the weight of these subcategories should be taken into account in a similar way.
• Professional scorecard software like BSC Designer will automate these calculations so that you can focus on the business side.
BSC DESIGNER
CALCULATING THE TOTAL PERFORMANCE
• Professional scorecard software like BSC Designer will automate these calculations so that you can focus on the business side.
MORE ABOUT THE BALANCED SCORECARD
Find more insightful articles about the Balanced Scorecard in ”Articles” section at www.bscdesigner.com
BSC DESIGNER
THANK YOU!
Feel free to send us your questions using the contact form at www.bscdesigner.com
top related