PerformanceMeasurement

Measuring and managing the performance of your company entails you pulling away from your daily routine, standing back and assessing the bigger picture.

When you stand back and think about

what your company does and how it does it, you

can more easily determine how your

company is operating….….. which allows you to

address the shortfalls and any other problems that

you identify in the process.

Valuable feed back that will assist you with:

• Improvements – by tracking performance, you will be able to improve your systems, and address problem areas – for example, improving customer loyalty.

• Planning and forecasting – are you meeting your goals? Do you need to revise your budgets and forecasts?

• Competition-compare performance against competitors and industry benchmarks, identify your weak areas and address them.

• Rewards/Incentives-by knowing whether goals have been achieved, performance-related incentives or bonuses can be fairly distributed to employees based on their direct reports.

• Compliance- measure performance so as to ensure compliance with standards and industry based regulation.

Three aspects of measurement:

• Measure activity – a straightforward measurement of activity in your business – ….x number of plastic cups were produced this month….

• Compare results– comparing current and past results

• To show performance against a pre-set goal-compare performance against a pre-set goal of the company

Understanding the terms used in Performance Measurement:

Critical Success Factors

• these are activities or processes that are vital for a business strategy to be successful. Why would a customer choose us? The answer would be a Critical Success Factor, or ‘CSF’ – “because we provide customer service via a 24/7 call centre…” (critical activity)

Key Performance Indicators

• this is a measure that quantifies management objectives, targets and thresholds. Key performance indicators or ‘KPI’s’ enable the measurement of strategic performance.

• For example, a KPI would be the number of new customers obtained this month. The threshold set would be “we need 10 new customers this month”. The KPI would be reached if 10 new customers were obtained.

Example of Performance Measurement Objectives

Mission“to be the best retailer

in the market”Business Goal or Strategy“Customer Satisfaction”

CSF“activity: create efficient

customer call centre”

KPI“number of new customers

obtained in a month” – set target or threshold at 10 new per month

So how do I implement a Performance Measurement System for my

Company ?

The first step: Define your company’s strategic goals and objectives

Review the company’s strategic planUnderstand the vision and strategy for the companyA comprehensive business plan would assist you with identifying your strategies and overall objectivesOnce you have identified your business goals, you will be able to determine what activities to look at to measure, activities that are critical to your success….

Second step: Identify Critical Success Factors (CSF’s)

Knowing your overall goal allows you to identify key business activities or Critical Success Factors (CSF’s),

needed to achieve that given strategic goal….

In our example, the goal is to increase customer satisfaction…….

………...and a number of CSF’s you could identify to achieve that goal would be to “create an efficient customer call centre” or to “reduce staff turnover”

(customer’s prefer to deal with the same sales person)…

Third Step: Decide on appropriate KPI’s to use to measure your key activities (CSF’s)

……. knowing your CSF’s allows you to put into place the appropriate KPI’s to measure their progress and

efficiencies….

In our example, the KPI will be designed to measure how well you are performing the task of obtaining

new customers or reducing staff turnover…..by setting targets and thresholds to be achieved and measured

There are three types of KPI:

Process KPI’s – measure the efficiency or productivity of a business process, for example, number of days to deliver the order, number of people customer must talk to before issue is

resolved

Input KPI’s – measure the assets and resources invested in or used to generate business results, for example, ZAR spent on research and development, or funding for employee training

Output KPI’s-measure the financial and non-financial results of business activities, for example, revenue, number of new

customer’s acquired

For each kind of business activity there are numerous KPI’s to use:

Key activity or CSF KPISales % of customer visits

or phone calls that generate sales % increase in sales over previous

period or year

Human Resources Workforce turnoverRates of absenteeism

What makes a useful KPI for your business?

It needs to reflect the goals of your business

Be critical to the success of your business

Be measurable

Point to the activities you might need to alter if things start to go off track

KPI’s – how do I set targets and thresholds:• Conduct surveys

• Set targets for each KPI or thresholds (whichever appropriate)

• Use benchmarking

• Set employee performance standards

The feedback you obtain from a set of well chosen and implemented KPI’s will equip you to determine how effective your business strategies and operations are, and to manage and address any areas that need intervention, so that the overall objectives and

goals of the company are achieved.

Measuring to Assess Goal Achievement:

Balance as the key to a strong performance measurement

system:

• When deciding what KPI’s to use, it is worth well to consider obtaining a range of information from many sources

• The company will gain a holistic picture which allows it to learn from previous mistakes and to constantly improve

• Striking a balance in its performance measurement system, allows a company to compile a more comprehensive picture of how it’s doing

It may be worth considering the Balanced Scorecard Approach

Seek to balance a company’s financial perspective with 3 non-financial perspectives – customer, internal processes and growth and workforce learning

This is known as the “dashboard” approach-likened to looking at, and gauging the many

instruments on an airplane’s dashboard-such as the fuel gauge and altitude indicator- in order to

fly the airplane effectively…

A comprehensive picture for a company would include looking at a range of factors such as:

Profit / Revenue / Cash flowEmployee knowledge,

Customer delight

Financial Performance Non-financial performance

Third party rankings of companies’ product performance vs. competitors

Process quality

External dataInternal data

Examine backward Examine forwardlooking Indicators looking indicators

Weigh subjective Weigh objective aspects of aspects of

performance performance

Sales figures Customer satisfaction ratings

Customer satisfaction

Employee capabilities

Revenues

Returns on invested capital

Fourth Step: Get your team involved

• Communicate the business plan and strategic objectives of the company to the team, so that all have a clear understanding of the direction you are taking the business and what needs to be done to achieve it

• Get your team involved and equipped towards setting KPI’s to measure the processes set to achieve thebusiness goals

Gather comparative data on the industry

External data – research on the web and benchmark companies with information that exists for the identified KPI’s in the industryInternal data – use historical internal data to determine the benchmark

Use benchmarking to assist with KPI’s

Establish benchmarks to use as a baseline in assessing the business’s performance

Use benchmarking and baselines as a basis for setting realistic targets from which to measure your company’s progress

A written summary of KPI’s benchmarks in all areas allows you tobring the KPI’s together in an easy to use management control plan

Setting targets and Employee Performance Standards

Establish a set of performance standards and targets and communicate these to staffFacilitate a team training session to encourage development and ownership of standardsStaff will have a good understanding of how to translate the vision of the company into actual behaviour, and will provide objective measurements of performanceOnce in place, link performance to recognition and reward systems

A target in the customer satisfaction example would be: we want to achieve 85% of customers who are very satisfied, which would mean an increase of 15% in customer satisfaction- this is a customer satisfaction index

The targets need to be realistic, not to high but enough to inspire and motivate staff to achieve the target

“Stretch” targets are overly ambitious targets that are set which are mostly unachievable and may have the result of de-motivating staff, and even causing unethical behaviour, known as “gaming” or manipulating the numbers

Be careful to set a target that both inspires yet does not overwhelm

Establish systems for reporting on KPI’s

Design simple systems that allow you to report on KPI’s without difficulty, and regularly

Compare actual results vs. the target set, and yourbusiness plan

Display KPI’s graphically for ease of reading, use pie charts and spreadsheets

Consider the source of the data

Consider the source of the data- is it subjective data or objective data?

Subjective data would include surveys filled out by customers in the presence of your employees……..

Objective data is factual-for example the % increase in sales revenue reflected in your financial reports…….

Communicate the dataUse the spreadsheets and charts to effectively communicate the data to employees, managers and executives (the team)Create snapshot views for senior managementSelect appropriate degree of detail Communicate difficult facts constructivelyCreate opportunities for review and discussion

Analyse and interpret the data

Look for trendsConsider the inherent variability in processes being measuredLook for events that might be causing the variationsConsider whether your targets or metrics need to be changedInvestigate and address performance shortfalls by interpreting the data

Valuable insights and improvements

Analysing the data and investigating the results may provide valuable insights into the companyFor example, high staff turnover may reveal a trend that staff leave more often after bonuses are paid, or may reveal underlying themes that staff are being headhunted or that there is low staff morale

Further investigation of results allows the company to implement changes or improvements thereby facilitating the achievement of its overall strategic goals.

ConclusionSome people refer to KPIs as their ‘critical numbers’ and that’s no exaggeration of their importanceA well designed and regularly monitored set of KPIs can provide you with:

A knowledge of how your business is performing andTarget the areas where remedial action ought to be appliedGoal setting and monitoring really are the basis of effective business performance management

Presented by:

Name of presenter:Position in firm:

Firm name:

Disclaimer- Whilst every care has been taken in the compilation of this seminar, presentation and handouts, no responsibility of any nature whatsoever shall be accepted for any inaccuracies, errors or omissions, nor for the accuracy of any information contained in the seminar handouts.