guidebook on kpis

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Exhibits on Key Performance Indicators :

The Balanced Scorecard Approach

www.mpc.gov.my Toll Free: 1-800-88-1140

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Content :

Introduction 3

What are KPIs? 4

Why we need KPIs? 6

What are the characteristic of KPIs? 7

How to develop KPIs? 10

What is Balanced Scorecard? A tool to develop KPI 12

Learning and Growth Perspective 13

KPI Samples : Learning and Growth 14

Business Process Perspective 18

KPI Samples : Business Process Perspective 19

Customer Perspective 30

KPI Samples : Customer Perspective 31

Financial Perspective 34

KPI Samples : Financial Perspective 35

Conclusion 40

References 41

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Introduction

The key to success of a business or an organisation is dependent on good

management information which allows the organisation to monitor and evaluate

the progress they made. Today, whether we are in the private or public sectors,

most of us are concerned with our performance. Organisations across the nation

are shifting from just seeing themselves as accountable for creating and carrying

out activities to being responsible for achieving results meeting goals, fulfilling

the objectives, and improving the quality of their services.

In an ideal world, organisations would all have vision, mission, goals and

objectives. Flowing from those would be the organisations Key Performance

Indicators (KPIs), the measures by which the organisation knows whether it is

successful or not. KPIs is one important tool both for translating strategy (vision

and mission) into action and for monitoring progress at a strategic level. When an

outcome is monitored and trended with a KPI, the resulting figure tells you the

process performance effectiveness.

Many things in the organisation are measurable. That does not make them key to

the organisation's success. In selecting Key Performance Indicators, it is critical

to limit them to those factors that are essential to the organisation reaching its

goals. It is also important to keep the number of Key Performance Indicators

small just to keep everyone's attention focused on achieving the same KPIs.

Whatever Key Performance Indicators are selected, they must reflect the

organisation's goals, they must be key to its success, and they must be

quantifiable (measurable). Key Performance Indicators usually are long-term

considerations. The definition of what they are and how they are measured do

not change often. The goals for a particular KPI may change as the

organisation's goals change, or as it gets closer to achieving a goal.

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What are KPIs?

Key Performance Indicators (KPIs) provide a series of measures against which

internal managers and external investors can judge the business and how it is

likely to perform over the medium and long term. The importance of KPIs is that

they help a company to assess how it is operating in terms of the targets that it

has set itself, and they can act to incentivise superior performance. In other

words, KPIs help companies to understand how well they are performing in

relation to their strategic goals and objectives. In the broadest sense, a KPI can

be defined as providing the most important performance information that enables

companies or their stakeholders to understand whether the company is on track

or not. This is the same approach that we use in our daily lives. For example, we

will refer on blood pressure, cholesterol levels, heart rate and body mass index

as key indicators of our health. It is the same approach of using KPIs in the

company.

Figure 1 : KPIs lead to continuous improvement.

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KPIs are metrics used in performance dashboards/scorecards, which measures

how well the organisation, business unit or individual is performing against

predefined goals and targets, KPIs help organisations achieve organisational

goals through definition and measurement of progress. Some general principles

regarding the KPIs should be taken into consideration during their application :

They should be seen within their local context and have more meaning as

a comparison over time than as a comparison between organisations.

Once again, a set of performance indicators should be balanced. For

example, measures of effectiveness and measures of cost against quality

and others.

After being proposed and applied, KPIs should ne reviewed and updated.

The targeted performance description, which is described in measurable

terms through KPIs, must be deployed to the organisational level that has

the authority and knowledge to take the necessary action.

Every initial proposal for KPIs is expected to be imperfect. However, it is

important for the organisations to understand and apply the appropriate

KPIs so that they can develop some experience in using them, from which

they can derive real expertise.

Figure 2 : Performance Measurement will answer these questions.

How well are we doing?

Are we meeting our goals?

Are our customers satisfied?

Are our processes in statistical control?

Where do we need to improve?

Where do we stand in comparison to our goals and objectives?

Where do we stand in comparison to our competitors?

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Why we need KPIs?

There are two main reasons each company has to measure its performance. It

includes learning and performance improvement and is to control and monitor

people. Measuring for learning and improvement is the most essential form of

using KPIs, with the aim to equip employees with the information they need in

order to make better informed decisions that lead to improvements. KPIs can

also be used to guide and control employees behaviors and actions. Here,

measures are used to set goals or rules, to objectively access the achievement

of these goals, and to provide feedback on any unexpected variance between

achievements and goals. Of these two, the first is the most important and the

second can cause major problems. Without KPIs, employees and business

managers would have to extract performance data and evaluate that data against

goals, and then spend the time to present that data in a separate report for

business decision makers. It is difficult to get timely status without a way to

quickly and automatically evaluate live data.

Figure 3 : Reasons to have Key Performance Indicators (KPIs)

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What are the characteristics of KPIs?

For a set of KPIs to help drive business performance, they must have a variety of

characteristics.

KPIs Must Be Easy to Comprehend

One problem with most KPIs is that there are too many of them. As a result, they

lose their power to grab the attention of employees and modify behavior. More

KPIs than this makes it difficult for employees to peruse them all and take

requisite action. In addition, KPIs must be understandable. Employees must

know whats being measured, how its being calculated, and, more importantly,

what they should do (and shouldnt do) to positively affect the KPI.

KPIs Are Always Relevant

To ensure that KPIs continually boost performance, you need to periodically audit

the KPIs to determine usage and relevance. If a KPI isnt being looked at, it

should probably be discarded or rewritten. In most cases, KPIs have a natural

lifecycle. When first introduced, the KPI energises the workforce and

performance improves. Over time, KPIs lose their impact and should probably be

revised. Most organisations review and revise KPIs quarterly.

KPIs Provide Context

Metrics always show a number that reflects performance. But a KPI puts that

performance in context. It evaluates the performance according to expectations.

The context is provided using 1) thresholds (i.e. upper and lower ranges of

acceptable performance), or 2) targets (i.e. predefined gains, such as 10% new

customers per quarter), or 3) benchmarks, which can be based on industry wide

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measures or various methodologies, such as Six Sigma. In addition, most KPIs

indicate the direction of the performance, either up, down, or static.

KPIs are understood by staff

A KPI should make clear what action is needed. In the case of an airline that was

having a problem with late planes, a KPI communicated immediately to all staff

that there needed to be a focus on recovering the lost time. Cleaners, caterers,

ground crew, flight attendants and liaison officers with traffic controllers would all

work some magic to save "a minute here and a minute there" while maintaining

or improving service standards.

KPIs have a significant effect on the organisation

A KPI will affect most of the critical success factors (CSFs) and more than one

balanced scorecard perspective. In other words, when the management team

focuses on the KPI and the staff follow, the organisation scores goals in all

directions.

KPIs have a positive effect on other measures

A KPI has a flow-on effect on other performance measures. Reducing late planes

would improve performance measures around improved service by ground staff

as there is less "firefighting" to distract them from a quality and caring customer

contact.

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Figure 4 : KPIs can shed the light for us

Consider these :

A customer service manager tracks customer service quality using surveys. If the surveys suggest that service is dropping, he might need to add more account representatives to improve service levels.

A benefits administrator monitors how many claims her group has processed in the previous year. An increase, for example, may suggest it is time to invest in new benefits software that can speed up claims processing.

A human resource staff calculates the percentage of employees who actually attend voluntary training programmes offered by the company., and compares the result against the targeted percentage. A drop may indicate the programme is unsuccessful and can prompt an inquiry to find out why possibly saving the company thousands of dollars in ineffective training programmes.

A communication expert reviews employee survey results to find out whether workers understand the companys corporate strategy. Lack of understanding may suggest the need for clearer presentations on strategy by the companys CEO and other executives or the need to reach employees through different channels.

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How to develop KPIs?

The key to selecting KPIs lies in selecting indicators that are quantifiable, and

critical to the companys goals. KPIs have to be specific and capable of

measurement. It is no recommended having KPIs that say :

We want to increase employees satisfaction.

We want to increase revenue.

They would need to be along the lines of :

We want to achieve a score of 97% 'very satisfied' or 'satisfied' in our

2011 employees satisfaction surveys.

We want to achieve RM1 million revenue of our product by the end of

2011.

Developing KPIs needs to be a consultative process which involving as many

people as is practical. Time must also be spent educating and explaining the

purpose of KPIs to all staff. This will lead to have mutual understanding from the

top level of management to the bottom line of business operation staff. When

looking at company performance, it is necessary to strike the correct balance

between the three main stakeholders/customers, and therefore it can be

challenging.

Figure 5 : KPIs development should consider the correct balance of the three

stakeholders.

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As a starting point in developing KPIs, it is recommended to use the SMART

concept :

Specific

Measurable

Achievable

Result-oriented or relevant

Time-bound

Developing and selecting the right key performance indicators however, is only

half the battle. As a manager one must also know how to handle these indicators

effectively. Apart from setting targets (such as achieving 10% revenue growth per

quarter), the indicators can be used as mini targets themselves to continuously

monitor progress as well as maintaining momentum. With the right approach, KPI

can be the stimulus as well as the benchmark to the company.

Figure 6 : SMART concept in developing KPIs

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What is Balanced Scorecard? A tool to develop KPI

The balanced scorecard (BSC) was developed by Kaplan and Norton since in the

early 1990s to help organisations succeed by embedding a strategy of balanced

focus and performance monitoring into the heart of organisational culture. The

BSC framework starts with an organisations building its vision and strategy. The

framework uses scorecards to show progress on the strategy. It is a

management system that maps an organisation's strategic objectives into

performance metrics in four perspectives namely, financial, internal processes,

customers and learning and growth. These perspectives provide relevant as to

how well the strategic is executing so that the adjustment can made as

necessary.

Figure 7 : BSC framework highlights the four perspectives (adapted from

Balanced Scorecard Norton & Kaplan)

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Balanced Scorecard views the organisation from four distinct perspectives.

Detailed below are the components that make up each perspective and example

of Key Performance Indicators for each perspective:

Learning & Growth Perspective

Employee training

Corporate culture attitudes on individual and corporate self improvement

Knowledge worker organisation with people as the repository of

knowledge

Continuous learning mode of operation driven by rapid technology

advancements

Learning is more than training (for example, it includes mentors and tutors,

ease of communication, etc.)

Learning and growth constitute the essential foundation of success for any

knowledge-worker organisation

Utilisation of technology tools, high technology work systems (for

example, the intranet)

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KPI Samples : Learning and Growth

Nos. Key Performance Indicators Definition Formula

1. Management Ratio This indicates the ratio between total number of headcount as compared to the total number of Executive and above level.

Total Number of Headcount / Total number of Executive & Above

2. FTE Employees per FTE Full Time Manager

This indicates the number of employees to each manager. It enables organisations to consider the appropriateness of their level of management and supervision.

Total Number of Headcount / Total Full Time Manager

3. Voluntary Turnover Rate This indicator captures the percentage of people leaving the company (trends) which in return may reflects the organisational systems, culture and practices.

(Total Voluntary Turnover / Total Number of Headcount) X 100

4. Training Headcount Investment Ratio

This indicates the businesss investment in its employees in terms of providing appropriate training to its staff.

Total Training Cost / Total Number of Headcount

5. Sick Leave Factor Is the time off from work that workers can use during periods of temporary illness to stay home and address their health and safety needs without losing pay.

((Total Sick Leave) / (Total Number of Headcount) / (Total Number working days)) X 100

6. Healthcare Costs The actual costs of providing services related to the delivery of health care, including the costs of procedures, therapies, and medications. It is differentiated from health expenditures, which refers to the amount of money paid for the services, and

Total Healthcare Costs / Total Number Headcount

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from fees, which refers to the amount charged, regardless of cost.

7. Time to Fill an Open Position The activities to fulfill the whole exercise activated from the date when headcount requisition have been approved by management and received by HRD Department to the physical reporting date. Excluding freezing mode of hiring.

Total working days to fill position / Total headcount hired

8. Cost Per Hire All variable recruitment costs incurred from headcount requisition approval to candidates physical reporting. Eg. : Variable cost: advertisement, referral, interview booth, employment screening, banner, etc. Excluding hiring incentive such as sign-on bonus, ex-gratia payment or head hunter fees and salary in lieu of notice and any or the monetary fringe-benefits.

Total recruitment costs / Total headcount hired

9. Medical Cost per Employee Medical fees (employees, dependents, specialist consultation), Insurance H/S (employees, dependents), In-house clinic expenses (nurses/in-plant consultation). Exclude employment screening & FOMEMA

Total medical costs / month-end headcount

10. MC Rate The number of days of sick leave, SOCSO leave, hospitalisation leave except those greater than 60 days entitlement.

(Total MC days / (Total working days per month X Month-end headcount)) X 100%

11. Absenteeism Rate A measure of absenteeism that includes both authorised and unauthorised sickness

(Total absenteeism days / (Total working days per month X Month-end headcount)) X

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related absence form work. 100%

12. Sales per Employee This indicates employee productivity. It is calculated as ratio of turnover (sales) divided by the total number of FTE employees.

Total sales / Total number of FTE employees

13. Labour Cost per Sales This measure indicates total cost paid to employees as compared to the total sales generated by the workers.

Gross salary / Total Sales

14. Employee Turnover Rate This measure provides an obvious indication of employee satisfaction. A high employee turnover is often linked to low employee productivity and usually results in high costs due to the requirement for training new employees. A very low turn-over may inhibit innovation and creativity, and also lead to succession issues due to age groups moving up the organisation structure. The measure can be tailored to assess individual departments, functions, or roles.

(Total number of employees resigning or being terminated / Total Number of Employees) X 100%

15. Recruitment Headcount Factor Total recruits (internal) is total number of internal recruits whether by transfer, promotions within the organisation. External recruits relate to the new or replacement vacancies which have been filled. The word 'recruits' refer to people who report to work.

(Total number of recruitments / Total number of headcounts) X 100%

16. Training Hours Ratio Training hours refer to the total hours of in-house and external training provided to employees during the year.

Total training hours (inclusive of OJT) / Total number of headcounts

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17. Training Cost Headcount Factor

This indicator reflects the organisational commitment toward employees' development. On a macro level, it provides glimpses of learning culture within the organisation itself.

Total training cost (inclusive of any training cost that can be tracked, i.e. allowance paid to OJT trainers, refreshment, etc.) / Total number of headcounts

18. Staff Cost Growth This indicates the increase/decrease in staff costs of the business last year, compared with the previous-to-last year.

((Staff cost last year) (Staff cost previous-to-last-year) / Staff cost previous-to-last-year)) X 100%

19. Cost Labour This measure reveals labour costs relative to overall sales revenue. It determines how efficiently a business is operating and also helps to make more informed decisions regarding potential human resources changes.

Total labour costs / total sales revenue

20. Human Resources Expense percentage

This measure monitors the cost of the HR departments in comparison to the total expenses of the organisation. This measure can be used to show the HR Department contribution to the effectiveness an organisations and its overall strategies.

Direct HR costs / Operating expenses

21. Training Frequency of new programmes

A measure that indicates the frequency with which new training programmes are made available. This can indicate the effort that the organisation applies to the development of its human resources.

Number of training programmes introduced per period

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Business Process Perspective:

This refers to internal business processes

Metrics are used in this perspective to determine how well the

organisations businesses are running

Determine whether the businesses products and services conform to

customer requirements (the Mission)

Metrics must be carefully designed by those who know the business

processes best

Typically there are 2 types of business processes relative to BSC:

a) Mission Oriented Processes that are special functions of major lines of

business. Typically this requires specialised metrics.

b) Support Processes that are the day-to-day processes that support the

business and organisation. Typically they can be measured and

benchmarked with generic metrics.

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KPI Samples : Business Process Perspective Area : Production


1. Production down time - Total This measure provides a measure of the total stoppage time by plant, area, unit and/or machine.

Down time due to all causes as a % of total time

2. Re-work - Time A measure of the re-work created as a consequence of production. Re-work does not normally include items that are scrapped - this depends upon an organisation`s definition of scrap.

Hours of re-work required as a % of total hours worked per batch or period

3. Production process time A measure which provides an input into the analysis of cycle time and the analysis and understanding of processes in general. Measures per batch or individual item.

Time taken from introduction of raw material into process to finished product made with the same batch of raw material

4. Waste reduction A measure that tracks progress in reducing waste

% of total waste (in tonnes) reduction per unit of production during previous period

5. Plan or schedule adherence A measure that provides an indication of the effectiveness of production (or other) scheduling.

No. of schedules changed (brought forward or back) per period as a % of total no. of items scheduled per period

6. Production to delivery ratio A measure that provides an indication of the proportion of lead time that is due to production. This can be helpful when designing or analysing delivery schedules.

Total production lead time as a % of total delivery lead time

7. Hours Per Vehicle Hours Per Vehicle is an indicator that -

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represents all hours worked and all units buits. It is calculated using total actual hours, including paid lunches & breaks, divided by the actual production in the time studied.

8. Total Plant Size Total Plant Size is the total plant size under roof, including the press room, metal assembly, maintenance area and all other common areas

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9. Major Press Lines This indicator represents the total number of active and idle press line.

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10. Blanking & Major Press This indicator indicates on-roll employment including hourly (direct and indirect labor) and salary employees as well as the normal daily total absenteeism for the blanking and major press/progressive areas only.

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11. Major Press Pieces This indicator includes the number of pieces produced for tandem, transfer and major progressive lines.

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12. Scrap or Yield Loss PPM Scrap or yield loss caused by errors NOT design scrap or unavoidable material loss. If you make large expensive items, define Scrap as Percent of material or components that were spoilt during processing

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13. Cost - Production staff These measures provide an indication of the cost of personnel as a proportion of output or sales value of production.

Wage or salary cost of production staff per unit of output or unit of sales unit value.

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14. Orders - Backlog (manufacturing)

This measure provides an indication of how closely sales orders have been aligned to existing production schedules and/or production capacity.

No. of complete orders not yet scheduled

15. Repair time This measure provides an analysis of the maintenance time per type of machinery or equipment, this can be used in conjunction with reliability analysis of the machine or equipment in production planning.

Average time spent on repairs to specific machinery.

16. Batch size A measure that offers an input to inventory level strategy design and inventory performance analysis. It can also be a significant factor in cycle time analysis.

No or volume of product(s) per production run

17. Takt time This is a measure of planned time between completion of units in a production system. Many organisations utilising just-in-time/continuous-flow manufacturing systems use this measure in process planning analyses.

Working time available / Production demand capacity

18. Assembly Set-up Time This indicates time taken, in minutes, for a typical changeover between products or batches in assembly / packaging production e.g. reset time, change tools, clean etc.

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19. Not Right First Time (part per million)

This indicates the product's ability to match a specification and is expressed in 'number of defect parts per million'. A 'defective unit' is a unit that does not conform to specification

(Assembly Set-up Time (minutes) / Product to Market (months)) X 1,000,000

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and may be scrapped or reworked part. The calculation can be applied to internal defect rates and external defect rates.

20. Stock Turnover (number) This indicates the number of times stocks are turned over during a year. The higher the stock turnover the better, because money is then tied up for less time in stocks. A quicker stock turnover also means that the firm gets to make its profit on the stock quicker, and so the firm should be more competitive.

Cost of Bought-in Materials and Services / Stock

21. Finished Goods to Stock (%) This indicates the percentage of total stock that is made up finished goods stock.

(Finished Goods / (Raw Materials + Work in Progress + Finished Goods)) X 100

22. Work in Progress to Stock (%) This indicates the percentage of total stock that is made up of work in progress stock.

(Work in Progress / (Raw Materials + Work in Progress + Finished Goods)) X 100

23. Raw Materials to Stock (%) This indicates the percentage of total stock that is made up of raw materials (or pre process) stock.

(Raw Materials / (Raw Materials + Work in Progress + Finished Goods)) X 100

24. Product Lead Time per Order (days)

This indicates the business's efficiency in the ability to deliver its orders. It is the average time between the placing of an order and the receipt of the good ordered.

Total Product Lead Time for all Orders / Delivery Schedule Deviation

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Area : Supplier Performance

Nos. Key Performance Indicators

Definition Formula

1. Supplier Effectiveness This indicates the average value of business for each supplier. A lower figure either demonstrates a need for reducing suppliers or few suppliers are able to offer the service that meets the organisation's needs.

(Cost of Bought-in Materials and Services / Number of Suppliers Used for Delivery of Core Products and Services) X 1,000

2. Percentage of Supplies Delivered on Time (%)

This indicates the ability of the business's suppliers to deliver on time as a percentage of total purchases. A higher figure demonstrates use of reliable suppliers.

(Supplies Delivered on Time / Cost of Bought-in Materials and Services) X 100

3. Percentage of Sub Standard Supplies (%)

This indicates the ability of the business's suppliers to deliver quality goods as a percentage of total purchases. A lower figure demonstrates use of reliable suppliers

(Supplies which are Sub-Standard on Delivery / Cost of Bought-in Materials and Services) X 100

4. Supplier involvement A measure which provides an indication of the strength of the supplier relationship. Involving suppliers in product and process development and utilising their knowledge can bring benefits to the organisation, the customer, and the supplier. Supplier involvement could be measured through a number of ways, in addition to the formulae offered an assessment of how closely the development team works with suppliers or average no. of hours of supplier contact in this process could be used.

Percentage of the customers product development process in which the supplier is involved

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Definition Formula

5. Cycle time - Invoice This measure can be used to indicate the efficiency with which invoices are dealt. An important area to watch as it can have significant effect upon supplier relationships or on cash flow levels, depending on whether measuring the payment of invoices, or invoices being paid.

Time from order placement to payment made or received

6. Supplier Certification A measure that monitors the % of certified suppliers. The certification standard is typically set or specified by the purchasing organisation.

No. of suppliers that are certified as a % of total no. of suppliers

7. Supplier - Lead time A measure of supplier lead-time. Time from placing an order to actual delivery from supplier.

8. Cycle time - Cash to cash Cash-to-cash cycle time is a supply chain management performance measure; when there are fewer partial shipments and fewer shipments with defects or other errors, customers pay faster, and accounts receivables are reduced. Note : with the reduction in inventory cash-to-cash cycle time is reduced even without an increase in payment terms from suppliers.

Cash-to-cash cycle time is the number of days between paying for raw materials and getting paid for product

9. Plan or schedule stability - Supplier

Schedule stability measures the degree to which plans or schedules given to suppliers change before they are converted into orders. The measure reflects the accuracy with which the organisation can predict its future requirements.

% or plans or schedules given to suppliers that do not change

10. Supplier - Delivery lead time A measure of lead-time. Delivery lead time measures how quickly a supplier can deliver the

lapsed time from receipt of customer

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Definition Formula

required finished product or service to the organisation.

order to product or service delivery

Area : Counter Service


1. Total Average Number of Customers at Counters (Per day)

Total Average Number of Customers Attending to Counters per day

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2. Total Number of Counter Staffs on duty at Counter (Per day)

Number of Counter Staffs on duty at respective counters per day.

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3. Total Average Number of Training Days Given to Counter Staffs (Per year)

Average number of training days given by management to counter staffs to enhance their skills and knowledge

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4. Average time for one transaction between customer and counter staff at counter (Per day)

Average transaction time to handle one customer at counter

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5. Total Budget Allocation / Spent on Counter Staff's Training (Per Year )

Budget allocation spent on counter staff's training per year

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6. Number of appreciation letters received by customers on counter services (Per year)

Number of appreciation letter by customers to acknowledge good and efficient services

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7. Total number of customers complaints received on counter services (Per

Total number of customers complaints received on counter services per month

-

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month)

8. Total number of Percentage Customer's Complaints Solved (Per month)

Total percentage taken to solve customer's complaint's per month

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9. Total Monetary Incentives given to Counter Staffs (Per month)

Monetary incentives provided or specifically given to counter staffs

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Area : Innovation


1. Innovation - Idea conversion rate

The idea conversion rate measures the rate at which new ideas are assessed and implemented successfully through improvement initiatives or directly on at the point of operations

% of ideas or suggestions that are implemented or acted upon

2. Innovation - Intensity A measure that provides an input to the assessment of the effectiveness/performance of the product/service development process.

No of new products introduced over period divided by no of employees

3. Innovation - Idea generation rate

A measure the organisation`s ability to generate new ideas.

Number of ideas or suggestions for improvement received monthly

4. Innovation - New product reliance

A measure that indicates the importance or reliance on new products as opposed to unchanged established products, it is also useful in the assessment of the effectiveness/performance of the product/service development process. The relevance of this measure will of course be influenced by the nature

Number of improved or new products in period as a % of total no. of products (product range) over period

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of the product and/or targeted market.

5. Innovation - Dedicated research time

A measure that indicates how far the leadership is prepared to go to create a culture of innovation. This can be a useful benchmarking measure when assessing the innovation intensity of an organisation.

Percentage number of employees formally devoting time regularly to researching new ideas

6. Innovation success rate This measure provides an indication of the success rate of innovative improvements implemented within the organisation in terms of having a positive impact on the business.

% of innovations that make a positive impact on the business

7. Innovation - New product/process introduction

This measure can provide an organisation with an indication of the level of innovation or the level of success of any new innovation focus.

No. of new products or processes introduced per annum or period

8. Innovation - Patents A measure that provides an input to the assessment of the effectiveness/performance of the product/service development process.

Number of new patents obtained over specific period.

9. Research & Development (R&D) - Rate of investment

A measure that provides an input to the assessment of the effectiveness/performance of the product/service development process.

Amount of investment in R&D over a given period at a given frequency.

10. Research & Development (R&D) - Financial resource allocation

A measure that provides an input to the assessment of the effectiveness/performance of the product/service development process.

Expenditure on R&D as a % of total amount of expenditure

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Area : Safety


1. Lost Time Injury Frequency Rate LTI

Frequency Rate for Lost Time Injury is the number of LTIs per one million hours worked.

(Number cases of LTI / Total Hours worked) x 1,000,000

2. Severity Rate for Loss Time Injury

Severity rate for LTI is the number of days away from work due to LTI per million hours worked. Total hours worked is the actual total hours of worked recorded for the Permanent & Contract employees.

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3. Fatality Rate Fatality rate is the number of fatality case for that reporting year. Fatality is an instantaneous work related event or exposure leading to death within one year of the even or exposure.

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4. Lost Time Property Damage Incidence (LTPDI) Frequency Rate

Is the number of cases of Lost Time Property Damaged Incident or that reporting year. LTPDI is an incident that may involve or may not involve injury but affect production loss of more than 2 days or damage of property of more than RM10,000.

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5. Severity Rate for Hearing Impairment

Is express as the percentage of employees suffering from hearing impairment as per examined by competent medical provider for that reporting year.

(Total number of employees suffering hearing impairment / Total number of employees) X 100%

6. Number of Reported Accidents Number of reported accidents involving persons other than employee e.g. Sub-

-

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in a year Contractors, Visitor

7. Number of Days Lost Caused by Accident

Number of days lost caused by accident only to direct employee (Power Plant Premises only).

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8. Lost Time Injury Refers to number of reported accident that resulted injury to the direct employee and sub-contractor at the power plant premises per million Man-hours worked in a year

(Number of Reported Accidents in a year / Number of Man-hours Worked in a year) X 1,000000

9. Injury Severity Rate Refers to number of days lost of the employee due to accident occurred at the power plant premises per million Man-hours worked in a year.

(Number of Days Lost Caused by Accident / Number of Man-hours Worked in a year) X 1,000000

10. Time Lost Due to Accidents or Injuries (LTI)

Measures time lost due to accidents and injuries at work (commonly known as LTIs). Can be an input to the analysis of an organisation`s health and safety program. Some organisations use high publicity of these figures as an awareness strategy to improve individual care in the workplace.

Total number of days lost due to injury per year / total hours worked per year

11. Total Injury Rates - Recordable This measure, used by the US Operational Health and Safety, measures those injuries that must be recorded in an organisation`s injury log and generally require medical treatment beyond first aid. Includes injuries with no time lost from work and those resulting in lost time.

(Total injuries / Total hours worked) x 200,000

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Customer Perspective:

Customer focus, orientation, and satisfaction are key components

Customer will find other suppliers if they are not satisfied or their

requirements are not being met

Poor customer satisfaction is a leading indicator of future financial decline.

Even if the current financial picture is good

Developing metrics in this area requires that customer profiles be done as

well as the processes that provide the products and services to them

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KPI Samples : Customer Perspective


1. Average Order Value This indicates the average order value expressed per order.

(Total Revenue Current Year / Number of Orders Received) X 1,000

2. Customer Growth This indicates how the business is expending, in terms of its customer base.

(Number of New Customers / Number of Customers) X 100%

3. Complaints per Customer This indicates the average number of complaints per customer, independent of the number of orders.

Number of Recorded Customer Complaints Received / Number of Customers

4. Complaints per Order This indicates customer satisfaction with the products and services supplied. The trend for this ratio can be useful to measure improvements in performance, and is also a method of assessing lost business.

(Number of Recorded Customer Complaints Received / Number of Orders Received) X 100%

5. Delivery Schedule Deviation This indicates how well a business is meeting its commitment for delivery promises. A lower figure shows better performance.

(Number of Customer Orders which were not delivered when Promised / Number of Orders Received) X 100%

6. Percentage of Orders Rejected During Warranty Period

This indicates the percentage of orders that have failed during the warranty period. The lower the percentage, in general, the better, as it means that more orders are supplied where the product or service was of satisfactory quality.

(Number of Orders Rejected by the Customer During the Specified Warranty Period / Number of Orders Received) X 100

7. Delivery - On-time Measures on-time delivery, a key factor in Number of orders (for products or services)

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satisfying customers. delivered on time as a % of total number of orders delivered

8. Customer - Retention This measure provides an indication of customer retention/loyalty or the value of this loyalty.

No. of regular customers over the past year / number of customers in total

9. Compliments-to-Complaints Ratio

This measure is a critical measure of an organisation`s performance as seen by its customers. It is widely used to determine the average service level of service organisations.

Number of compliments received for every complaints received

10. Customer complaint - Time to resolve

A key contributor to customer satisfaction, this measure indicates the average time it takes to resolve a complaint to the customer`s satisfaction.

Average time taken to resolve customer complaints to the customer`s satisfaction

11. Customer - Complaint response time

This measure provides data on the length of time it takes to respond to a customer complaint. It does not indicate whether or not the complaint was dealt with satisfactorily but a quick initial response time can be a key contributor to the satisfactory conclusion of a customer complaint process by helping to contain or prevent further unnecessary build up of the situation on the part of the customer (who then knows the situation is in-hand).

Average time to respond to customer complaints

12. Customers New This measure can provide an input to the analysis of sales force performance or new

Number of new customers over the past year as a % of no. of customers in total

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product success or new marketing strategy or other appropriate areas.

13. Customer complaints - Resolution

Measures whether customer complaints are resolved to the satisfaction of the customers` needs.

% customer complaints successfully resolved

14. Customer- order lead-time A measure of the amount of time required to fill a customers order, from receipt to final shipping or delivery.

Time elapsed from the receipt of an order until the finished product is either shipped or delivered to the customer

15. Customer retention cost This is a measure of the cost involved in retaining customers.

Average cost of retaining existing customer

16. Customer acquisition cost This is a measure of the cost involved in attracting or retaining customers.

Average cost of attracting new customers

17. Call-Centre (or customer service call) response time performance

A measure of the employees success in meeting targets for response times. This measure can influence customer satisfaction and to inquiry conversion.

% of calls answered within response target level (no. rings or time in seconds)

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Financial Perspective :

Based on financial data that is timely and accurate funding data

Implementation of a corporate financial database is key

Centralization and processing, accessibility, and automation of financial

data is key

Special attention must be paid to any possible skewing of the Financial

Perspective

Risk Assessment and Cost/Benefit Analysis should be included in this

perspective

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KPI Samples : Financial Perspective


1. Net Profit Margin This indicates the amount of net profit per RM1 of turnover a business has earned. That is, after taking account of the cost of sales, administration costs, the selling and distributions costs and all other costs.

(Profit Before Tax Current Year / Total Revenue Current Year) X 100

2. Return on Capital Employed This indicates the percentage return generated on the total capital invested in the business, a good overall measure of management effectiveness.

(Profit Before Tax Current Year / (Long-Term Loans + Other Long-Term Liabilities + Shareholders' Fund Current Year)) X 100

3. Return on Net Asset This indicates the return being generated on equity shareholders investment in your business, taking into consideration all costs, including interest and other financial costs.

(Profit Before Tax Current Year / (Total Assets - Total Creditors - Other Current Liabilities)) X 100

4. Return on Total Asset This indicates the business's ability to generate a return on the total assets (fixed or current) held within your business. This shows operating efficiency.

(Profit Before Tax Current Year / Total Assets) X 100

5. Fixed Costs as a Percentage of Sales

This indicates operational gearing. Businesses, which have high fixed costs relative to variable costs, are said to have high operational gearing. Operational gearing matters because it highlights potential volatility in future profits, when activity levels change. Businesses with high

((Total Revenue Current Year - Cost of Sales Current Year - Operating Profit Current Year) / Total Revenue Current Year) X 100

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operational gearing will have profits which rise disproportionately from a given increase in turnover, and conversely, which fall disproportionately when turnover declines.

6. Staff Costs as a Percentage of Sales

This indicates the amount that is spent on salaries as a proportion of turnover.

(Staff Costs Current Year / Total Revenue Current Year) X 100

7. Value Added as a Percentage of Sale

This indicates the business efficiency to add value to bought-in materials and services. It is the difference between the cost of bought in materials and services and sale price.

(Total Revenue Current Year Depreciation / Total Revenue Current Year) X 100

8. Current Ratio This indicates the business's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash inventory, receivables).

(Total Debtors + Stock + Cash in Bank and in Hand + Other Current Assets) / (Total Creditors + Other Current Liabilities + Short-Term Loans)

9. Acid Test This indicates the businesss ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). Stock is taken away from current assets as it can take too long to get rid of.

(Total Debtors + Cash in Bank and in Hand + Other Current Assets) / (Total Creditors + Other Current Liabilities + Short-Term Loans)

10. Creditor Days This indicates how many days on average it takes a business to pay its bills. It measures the reliance on creditors, supplier relationships and may be a measure of solvency.

(Total Creditors / Cost of Bought-in Materials and Services) x 365

11. Debtor Days This indicates how many days on average it (Total Debtors / Total Revenue Current

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takes a business to get paid for what it sells. It measures how the business manages its debtors, i.e. credit and bad debt control, and could impact upon customer relationships.

Year) X 365

12. Working Capital Turnover This indicates how effectively working capital is being used in terms of the turnover it can help to generate. The higher the figure the better.

Total Revenue Current Year / (Total Debtors + Stock + Cash in Bank and in Hand) - (Total Creditors + Other Current Liabilities)

13. Cash in Bank to Turnover This indicates the businesss accessibility of cash. However, companies that hold too much cash may not be investing their funds to the best advantage of their business.

(Cash in Bank and in Hand /Total Revenue Current Year ) X 100/

14. Interest Cover This indicates the safety margin that the business has in terms of being able to meet its interest obligations. That is, a high interest cover means that the business is easily able to meet its interest obligations from profits.

Profit Before Tax Current Year / Interest Payable Current Year

15. Gross Gearing This indicates the extent to which a business uses debt versus equity to finance its working capital and is a measure of business risk.

((Short-Term Loans + Long-Term Loans) / Shareholders' Fund Current Year) X 100

16. Net Profit Growth This indicates the changes to the profit margin last year compared to the previous-to-last year. It measures how well costs have been controlled when compared to the growth of-pre-tax profit.

((Profit Before Tax Current Year - Profit Before Tax Previous Year) / Profit Before Tax Previous Year) X 100

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17. Earning per Share Holder This measure, very popular in the 1980`s, tracks financial performance per share. A measure commonly use to measure an organisations past performance and in projecting future earnings potential. Formulas for this can vary dependent on circumstance and choice.

Change over period of (Profit after tax (not extraordinary items), minority interests and preferred dividend) / Total no. of ordinary shares issued.

18. Asset turnover A measure that can indicate the flexibility of an organisation. A high level of capital employed in comparison to sales is likely to reduce an organisation`s ability to diversify and attempt new ventures. At the same time if high start-up costs are involved it may discourage potential market entrants.

Sales as a % of capital employed

19. Sales Fixed Assets This measures the amount of fixed assets that are required to produce a certain level of sales. This an indicator of the efficiency with which the organisation uses its fixed assets.

Total sales as a % of current fixed assets value

20. Breakeven time (BET) (payback time) - New product / service

A measure of the time it takes for sales turnover from a new product or service to equal the cost of bringing that new product or service to market, as measured from the beginning of the project.

Time elapsed when cumulative sales turnover from the new product or service equals the cost of bringing it to market

21. Receivables turnover This measure provides an input to the analysis of the liquidity of an organisation`s receivables. This can be used in designing strategy relating to the balance between

Annual sales through credit / Average trade account receivable

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retaining slow paying customers and avoiding cash-flow congestion.

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Conclusion

The KPI Process provides specific performance feedback on key behaviour

expectations as well as our ability to meet performance goals that we have set.

KPI's are used to monitor both financial and non financial activities, processes

and financial results. In addition, KPI's provide a standardised way to clearly

communicate to the organisation what is important and where the focus should

be on a regular basis. This could be daily, weekly or monthly performance

monitoring depending on the need. Another important contribution that KPI's

make is to provide a tracking system that can move an organisation toward

continuous improvement.

Managers at all levels in an organisation can track key performance indicators to

assess how well their groups are meeting their business objectives, whether

performance is improving or declining, and how their groups performance

compares with that of other units or groups within the company and with rival

organisations.

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References

Developing and Using Balanced Scorecard Performance Systems Howard

Rolm, Perform, 2002

Building and Implementing a Balanced Scorecard Howard Rolm, US

Foundation for Performance Management

How to Measure Performance: A Handbook of Techniques and Tools

Performance Based Management, US Dept of Energy

Keeping Score Mark Graham Brown, Quality Resources

Performance Drivers Niles-Goram Olve, Jan Roy, and Mangus Wetter, Wiley

The Balanced Scorecard Robert Kaplan and David Norton, Harvard Business

School Press

The Strategy Focused Organisation - Robert Kaplan and David Norton, Harvard

Business School Press

ITIL Service Delivery and Service Support Guides (ITIL is a registered trade

mark of OGC)

IT Service Management A Practical Operational Approach Guide A

Compilation of Best Practices for the IT Service Provider, Rick Leopoldi

guidebook on kpis

Documents