Key Performance Indicators (KPI's)

Introduction

Key Performance Indicators (KPI’s) help an organisation define and measure progress toward organisational goals.

They should be limited to those factors that are ‘Key’ (ie. essential make or break elements linked to the success or failure of the organisation in reaching its goals). It is therefore important to keep the number of KPI’s small in order to keep everyone's attention focused on achieving the same goals.

‘Performance’ measures must be clearly measured, quantifiable and easily influenced by the organisation to be of use. There is no point having a KPI that you can do nothing to change.

The use of these ‘Indicators’ allows variances between the set goals and actual results to be investigated and for processes and resources to be adjusted to achieve the organisations’ goals.

There is no template format for KPI’s because they will differ depending on the organisation and their objectives. For example a company may aim to be the most profitable company in their industry, and so use KPI’s that measure profitability such as pre-tax profit and shareholder equity, whereas a school, not concerned with making a profit, will have KPI’s such as graduation rate and success in finding employment after graduation.

The acronym SMART is useful when identifying KPI’s:

·      Specific    (ie. must have clear organisational goals)

·      Measurable    (ie. easily quantifiable)

·      Achievable    (ie. can be easily influenced by the organisation)

·      Result-oriented    (ie. must be key to achieving organisations goals)

·      Time-bound    (ie. have a time frame within which to achieve results)

For example: "Increase Average Revenue per Customer from £10 to £15 by December 2008". In this case, 'Average Revenue Per Customer' is the KPI.

Financial KPI's

Examples are:

Non-Financial KPI's

Examples are: 

GENERAL

Environmental

• Environmental damage (carbon emmissions)

• Fuel economy of vehicles

• Percentage and total volume of paper recycled.

• Amount of energy saved due to conservation and efficiency improvements.

Employees

• Employee engagement and leadership – measure employee attitudes using an employee survey. Employee engagement is often a driver to customer satisfaction.

• Percentage of employees receiving regular performance and career development reviews

• Average number of training hours per employee

• Total overtime hours worked

• Employee turnover – number of employees leaving as a % of the employees at the start of the year. This may reveal further problems in staffing, salaries, unhappiness of employees. An organisation is only as good as its employees, and if the organisation is failing to attract good candidates it must find out why.

• % rate of the employees working for the organisation as a contractor -  measured as number of contractors divided by total number of employees. This measure is interesting for the continuity of knowledge within an organisation.

• Sickness absence rate – % of calender days lost to sickness

Customer Service

• Increased customer satisfaction – measurable by customer questionnaires

• Minutes a customer is on hold before a sales rep answers

• Number of new customers acquired

• Customer defection - number of customers, or the % of customers from the total customer file, that have been lost and are not a customer anymore.

• Customer Referrals - number of potential (customers) that have been referred to the organisation by a certain predefined third party, ie. clients or suppliers.

Assets

• Average age (e.g. in years) of fleet.

Theft

• Profit loss due to theft.

INDUSTRY SPECIFIC

Online Trading

• Profit per Customer Visit

• Average sales per customer or transaction - total sales divided by the number of transactions for the same period.

• Percentage of unique visitors 

• Average Visits to Purchase

Property Rental / Sale

• % of empty rental properties

• Average length of time property takes to sell

• Percentage of late rent payments - % of the payments arriving late in the payment period agreed e.g. monthly.

• Average property management fees per tenancy based on management fees within measurement period.

Property Construction / Manufacturing

• Construction materials wasted or unusable as a % of total materials used

• Average construction period

• Time taken to rectify defects – measured in hours / days

• Additional costs incurred to rectify defects

• Overrunning projects – measured in hours / days

• Additional costs incurred due to overrunning projects

• Cost of construction. Monitoring costs is an important element in construction. Recording over and under spends can lead to more effective cost management in the future and can enhance profit margins. Variations between expected design costs and actual construction costs can be measured in £ or as a %.

• Number of changed orders

Retail

• Order frequency - how often is an item ordered?

• Number of Point Of Sale (POS) transactions over a given period. This can be compared with previous periods.

• Sales of goods and services taken up by the key customers of the organisation, i.e. top 10% to 20% of customers.

• Sales per labour hour - actual sales for the store divided by the number of selling (rather than total labour hours) ]hours during the same period. This statistic shows the speed at which each individual salesperson is selling or attending to customers compared to others.

• Average sale - the average selling price of each individual salesperson compared to others - higher averages show a greater knowledge of whereas low statistics reveal the salesperson lacks skill in either product knowledge or effective probing.

• Items per sale - shows the ability of the salesperson to add-on to a sale.

• Sales per square foot - actual sales for a given period (usually a month or a year) divided by the total floor area (in sq.ft.) of the store or per square foot of merchandisable area of choice (like walls and display units.)

• Conversion rate - The number of transactions in a given period divided by the total number of customers who entered the store during the same period 

• Sales compared to last year (or any other period): Actual sales for a given period divided by actual sales for the period you want to compare to.

• The actual delivery date compared with the agreed date of delivery.

• Stock Outs - The number of occurences in which the demand is higher than the supply

• Sales compared to budget/target - actual sales divided by budget/target sales

• Wage to sales ratio - wages cost as a % of revenue. This can be used to justify the amount being paid to the employees and its return in the form of increased revenue for the organisation

Not-for-profit Organisations

• Human capital growth - the number of volunteers recruited over a certain time period and the length of the volunteers’ commitment.

• Diversity and skills of human resources - the diversity in the volunteers’ skill levels.

• Levels of funding and donation

• Variety of missions and projects – to measure independence from bureaucratic, religious and racial bias.