Download - Scorecard and KPIs 101
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SCORECARD AND KPIS 101
Based on www.bscdesigner.com/scorecard-and-kpis-101.htmBy Aleksey Savkin, bscdesigner.com
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NOT ALL INDICATORS ARE KPIS
• It doesn’t make sense to call something “KPI” until a business context is defined.
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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.
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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”
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WHAT PROBLEMS ARE KPIS AND A SCORECARD SUPPOSED TO SOLVE?
• Indicators are numerical values that are linked to some kind of process.
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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.
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WHAT PROBLEMS ARE KPIS AND A SCORECARD SUPPOSED TO SOLVE?
ON INDICATOR LEVEL:
• Show the current value.
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WHAT PROBLEMS ARE KPIS AND A SCORECARD SUPPOSED TO SOLVE?
ON INDICATOR LEVEL:
• Show the current value.• Introduce the performance function
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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.
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WHAT PROBLEMS ARE KPIS AND A SCORECARD SUPPOSED TO SOLVE?
ON SCORECARD LEVEL:
• Group indicators into categories.
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WHAT PROBLEMS ARE KPIS AND A SCORECARD SUPPOSED TO SOLVE?
ON SCORECARD LEVEL:
• Group indicators into categories. • Specify the relevant importance.
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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.
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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.
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INDICATOR LEVEL
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THE VALUE OF AN INDICATOR
530 $
20 hours/week
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THE VALUE OF AN INDICATOR
530 $
20 hours/weekNumeric value
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THE VALUE OF AN INDICATOR
530 $
20 hours/weekNumeric value Measure unit
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THE ROLE OF THE PERFORMANCE FUNCTION
• What the value “530$” means?
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THE ROLE OF THE PERFORMANCE FUNCTION
• What the value “530$” means?
• Is it a high or low?
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THE ROLE OF THE PERFORMANCE FUNCTION
• We need a measurement scale !
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VALUE
TIME
We need a measurement scale !
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VALUE
TIME
MaxMax – means the maximal possible value of an indicator
We need a measurement scale !
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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 !
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VALUE
TIME
Max
Min
We need a measurement scale !
BSC DESIGNER
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THE PERFORMANCE OF AN INDICATOR CAN BE CALCULATED AS
Performance (Value), % = x 100%(Value – Min)
(Max – Min)
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In our example:
Value = 530Min = 0Max = 600
THE PERFORMANCE OF AN INDICATOR CAN BE CALCULATED AS
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THE PERFORMANCE OF AN INDICATOR CAN BE CALCULATED AS
Performance (Value), % = x 100%
= 88%
(530– 0)
(600 – 0)
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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
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THE PERFORMANCE FUNCTION IS NOT ALWAYS LINEAR
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THE PERFORMANCE FUNCTION IS NOT ALWAYS LINEAR
• For example, the performance might grow very slowly in the beginning, but then increase rapidly
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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.
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Performance (Value), % = x 100%Power (Value,10)
Power (Max, 10)
THE PERFORMANCE FUNCTION IS NOT ALWAYS LINEAR
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WITH THE INCREASE OF THE VALUE THE PERFORMANCE MIGHT BE
DECREASING
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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.
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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.
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Performance (Value), % = x 100%(Max – Value)
(Max – Min)
WITH THE INCREASE OF THE VALUE THE PERFORMANCE MIGHT BE
DECREASING
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CALCULATING THE PROGRESS
• Sometimes it is necessary to focus attention on a very specific part of the performance interval.
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VALUE
TIME
Max
Min
CALCULATING THE PROGRESS
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VALUE
TIME
Max
Min
CALCULATING THE PROGRESS
Planning horizonHistorical
valuesBSC DESIGNER
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VALUE
TIME
Max
Min
CALCULATING THE PROGRESS
Planning horizonHistorical
values
Baseline
Target
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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
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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?”
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VALUE
TIME
Max
Min
CALCULATING THE PROGRESS
Planning horizonHistorical
values
Baseline
Target“Baseline” and “Target” are used to calculate the progress.
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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?”
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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.
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SCORECARD LEVEL
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THE RELEVANT IMPORTANCE OF KPIS
A support center has two KPIs:
– “Average email response time,” hours
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THE RELEVANT IMPORTANCE OF KPIS
A support center has two KPIs:
– “Average email response time,” hours– “First contact resolution rate,” %
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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?
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THE RELEVANT IMPORTANCE OF KPIS
• A company can make ”Average email response time” equal to 10 minutes,
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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.
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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.
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THE RELEVANT IMPORTANCE OF KPIS
• To reflect this idea we need a concept of “weight” :
– “Average email response time,” hours– “First contact resolution rate,” %
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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
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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.”
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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.
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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:
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CALCULATING THE TOTAL PERFORMANCE
• Let’s convert this into a different notation:
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CALCULATING THE TOTAL PERFORMANCE
• We had our weight on a scale 1..10, so before moving ahead we need to calculate a normalized weight:
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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
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CALCULATING THE TOTAL PERFORMANCE
• The final formula for the total performance index of the scorecard will be:
Where M is a number of categories.
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CALCULATING THE TOTAL PERFORMANCE
• These calculations are simple if you don’t have subcategories in your scorecard.
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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
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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
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CALCULATING THE TOTAL PERFORMANCE
• Professional scorecard software like BSC Designer will automate these calculations so that you can focus on the business side.
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MORE ABOUT THE BALANCED SCORECARD
Find more insightful articles about the Balanced Scorecard in ”Articles” section at www.bscdesigner.com
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THANK YOU!
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