Key Performance Indicators

Background

The term KPI has become one of the most over-used and little understood terms in business
development and management. In theory it provides 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. Regrettably it has become confused with metrics if we can
measure it, it is a KPI. Against the growing background of noise created by a welter of such
KPI concepts, the true value of the core KPI becomes lost.

The KPI when properly developed should be provide all staff with clear goals and objectives,
coupled with an understanding of how they relate to the overall success of the organisation.
Published internally and continually referred to, they will also strengthen shared values and
create common goals.

What are the key components of a KPI?

The KPI should be seen as:

Only Key when it is of fundamental importance in gaining competitive advantage and is a

make or break component in the success or failure of the enterprise. For example, the level of
labour turnover is an important operating ratio, but rarely one that is a make or break element
in the success and failure of the organisation. Many are able to operate on well below
benchmark levels and still return satisfactory or above satisfactory results.

Only relating to Performance when it can be clearly measured, quantified and easily
influenced by the organisation. For example, weather influences many tourist related
operations but the organisation cannot influence the weather. Sales growth may be an
important performance criteria but targets must be set that can be measured.

Only an Indicator if it provides leading information on future performance. A considerable

amount of data within the organisation only has value for historical purposes for example
debtor and creditor length. By contrast rates of new product development provide excellent
leading edge information.

Obviously KPI's cannot operate in a vacuum. One cannot establish a KPI without a clear
understanding of what is possible so we have to be able to set upper and lower limits of the
KPI in reference to the market and how the competition is performing (or in the absence of
competition, a comparable measurement from a number of similar organisations). This means
that an understanding of benchmarks is essential to make KPI's useful (and specific to the
organisation), as they put the level of current performance in context both for start ups and
established enterprises though they are more important for the latter. Benchmarks also help
in checking what other successful organisations see as crucial in building and maintaining
competitive advantage, as they are central to any type of competitive analysis.

Start with what you need to measure and monitor

Different organisations need to monitor different aspects of their environment. For example,
 the airline industry has a complex set of issues many of which (but not all) are different from
the dairy farmer. Ibis has created a number of separate business monitoring modules for
medium sized companies which we believe cover the majority of requirements for the
development and maintenance of their organisation, that are part of a bottom up planning
system based around knowledge centres. For the typical medium enterprise, 80 monitoring
elements are part of the standard Ibis kit which is initially proposed during the introduction
of knowledge centers. This kit provides a rapid introduction of the key monitoring
components. These are the key components of the range of monitoring elements that can be
considered in the accompanying table below.

Knowledge centre Focus of activity Possible KPI

Administration Leadership, planning and monitoring, balanced
scorecard, budgeting, portfolio theory, golden
circle, decision making, creativity, SCORE,
corporate governance, territorial imperative,
impact analysis, standard operating procedures,
mosaic management, prioritisation, trade offs,
MBO, succession planning, quality circles,
technology audit, vision statement, SBU
decisions, Abacus principle, time
keeping,barriers to entry, critical success
factors, business model, legacy issues,
successes failures/ lessons learnt, authority/
responsibility, recruitment appraisal,
acquisitions, cascade investment, disposals,
premises review, stakeholder relationships,
trade associations, synergy, recruitment
appraisal, risk management, planning
effectiveness, legal, health and safety, SBS,
utilities, insurance, security, design for
operating efficiency, time study, complaints,
pensions, share options, employee share
savings schemes, creativity, fringe benefits,
bonus systems,secrecy, meeting management,
time management, cost cutting, facilities
management, stress, forecast grid, trade offs,
communication, investment appraisal, health
and safety, environmental audit, ISO 9000, ISO
14000, operating financial review (OFR),
working conditions, employee suggestion, team
building, training, internal service satisfaction
PEST elements, budget ratio,
high impact/ high probability
assumptions and boundary
conditions (strategic risk
assessment),CGAL, RSM,
contractual, portfolio risk
levels, % hurdle rate,
insurance costs/sales, BEV,
capital spread ratio, cost per
sqm or cost per employee for
facilities total space,
productive hours %, %
meeting time, BS index,
utility cost, noise, accidents,
% outsourcing, complaint
resolution speed, complaint
resolution cost, average
meetings/ month, utility cost/
market cost ratio, premises
cost/ market cost ratio, space
utilisation, whistleblowing,
temperature, noise, health
and safety breaches, security
breaches, document loss,
pension cost, theft, AER,
budget ratio, KFR, project
success, certification, wages
ratio, litigation, internal
service satisfaction levels,
effective headcount, %
mentoring
Finance Planning and monitoring, balanced scorecard,
budgeting, cash flow, profit and loss, balance
sheet, successes failures/ lessons learnt, trade
offs, MBO, mosaic management, prioritisation,
IFRS, GAAP, succession planning, accounting
assumptions, technology audit, SCORE,
decision making, creativity, quality circles,
asset register, invoicing,profitability, activity,
and liquidity ratios, revaluation accounting,
fraud, capital allocation profile, James' rule,
contingent liabilities, deferred consideration,
cost capitalisation, brand accounting, cost
cutting, payment systems, trade offs,
documentary credits, time keeping, dividend
policy, cash management, currency
management, sales tax, depreciation, synergy,
recruitment appraisal, funding options,
financial reporting, audit, cascade investment,
recruitment appraisal, source and application of
funds, sensitivity analysis, investment
appraisal, convertibles, tax management, credit
management, hedging, team building, time
management,training, internal service
satisfaction
Marketing/ sales Planning and monitoring, balanced scorecard ,
budgeting, portfolio analysis, trade offs, MBO,
successes failures/ lessons learnt, succession
planning, recruitment appraisal, mosaic
management, prioritisation, technology audit,
SCORE, decision making, creativity, market
drivers, marketing mix, branding, Single Block
Theory, entrants, substitutes, market research,
customer panel, sales channels, distribution
channels, sales management,investment
appraisal, call centres, marginal profitability,
quality circles, customer loss, products/services
(width/depth), cross selling, value chain,
expectation fulfillment gap, market size,
customer transition, seasonality, networking,
price elasticity,cascade investment, pricing
terms and conditions, quantitative analysis,
customer satisfaction, reference sale, time
keeping, synergy, pricing power, cost cutting,
market spread, customer investment review
(CIR), marketing myopia, product age spread,
organisational buyer behaviour, reference sale,
customer spread, product age, competitive
advantage, competitive bidding, trade offs,
Financial ratios, budget ratio,
% outsourcing, FER, BEV,
BEV/EBITDA, debt age, cost
of finance, capital allocation
ratio, capex, EFT%, CER, tax
charge, SPT %, gross yield,
P/E,PEG, EPS, project
success, DER%, BDR, FCF,
overdue accounts, productive
hours %, market dynamics
capital allocation, EBITDA
currency/ debt currency ratio,
sales tax rate %, cash interest
rate%, depreciation %,
internal service satisfaction
levels, effective headcount, %
mentoring
CLV, budget ratio, market
share by segment, trial rate,
competitive score, sales by
channel, % repeat purchase,
average sales value, sales
productivity, market share,
advertising productivity by
channel, cost per lead, cost
per converted lead, bid
success rates, range sale%,
average discount, service call
out times, productive hours
%, enquiry response time,
seasonality ratio, price index,
customer satisfaction,
advertising awareness, %
branding %, customer
investment review, customer
transition rate, value chain, %
outsourcing, MER, budget
ratio, EGMG ratio, customer
investment return, customer
churn, complaints, warranty
claims, project success,
 negotiation, recruitment appraisal, game theory, channel members, product
channel management, customer care, positioning variance, SER,
complaints, warranties, mystery shopper, time AER, pricing, price elasticity,
management, branding, team building, training, country spread, seasonality
internal service satisfaction ratio, customer spread,
product spread, product age
spread ratios, segmental
leadership, TDA's, project
success, CIR%, competitive
bidding success %, internal
service satisfaction levels,
effective headcount, %
mentoring

Production/ Planning and monitoring, balanced scorecard, Cost variances, budget

logistics / service budgeting, successes failures/ lessons learnt, ratio,order processing cycle,
delivery standard costing, activity based costing, trade production cycle times,
offs, MBO, succession planning, mosaic downtime, % outsourcing,
management, prioritisation, investment PLER, budget ratio, STR,
appraisal, design for operating efficiency, JIT, capacity utilisation, logistics
FMS,technology audit, SCORE including cost cost, SPC, load utilisation,
cutting, decision making, creativity,production failure rates, return on plant,
efficiencies, PLM, aggregate demand policy, space utilisation, set up time,
synergy, management accounting, OR, waste rates, pollution levels,
suppliers, supply chain management, MRP, emergency delivery, out of
backorder, time keeping, inventory levels, stock %, obsolescent stock
production equipment age, quantitative %, recycling%, back order %,
analysis, design, sophistication, capacity, TQM, JIT% energy efficiency ratio,
TPM, waste management, condition peak capacity %, supplier
monitoring, recycling, complaints, technical ratio, partnering, obsolescent
support, recruitment appraisal, distant data stock, EOQ, number of
capture, distribution structure (warehousing, suppliers, supplier spread
outlet location) and physical distribution ratio, number of components,
management, obsolescent stock, cascade emergency call out, delivery
investment, time based competition, time failures, productive hours %,
management, quality circles, order processing, E-enablement, vendor rating,
trade offs, scheduling, purchasing, recruitment project success, internal
appraisal, vendor ranking, networking, service satisfaction levels,
postponement, standardization, product/ service effective headcount, %
design, team building, training,internal service mentoring
satisfaction
Personnel Planning and monitoring, balanced scorecard,
budgeting, successes failures/ lessons learnt,
trade offs, MBO, succession planning, mosaic
management, prioritisation, quality circles,
Noah principle, decision making, creativity,
technology audit, SCORE, eight "S",
absenteeism, timekeeping, trade offs, overtime,
industrial relations, stress, bonus systems,
training needs analysis, time keeping,
recruitment appraisal, time management, team
building, cost cutting, cascade
investment,wages, employee record keeping,
synergy, vacation planning, training, internal
service satisfaction
Productivity, budget
ratio,turnover, absenteeism,
% outsourcing (temporary
staff ratio), PER, budget
ratio, labour cost%, wages
ratio, CNCER, employee
satisfaction levels, CH/WH
ratio, overtime%, skills,
training, discipline, disputes,
appeals, timekeeping ratio,
apprenticeship, recruitment
costs, training
days,productive hours %,
whistleblowing, span of
control, appraisals, wages
ratio, diversity index, PDP,
project success, internal
service satisfaction levels,
effective headcount, %
mentoring

IT Planning and monitoring, balanced scorecard , Management information

budgeting,successes failures/ lessons learnt, system
trade offs, MBO, investment appraisal, functionality,productivity,
succession planning, mosaic management, budget ratio,stability, web
prioritisation, data mining, technology audit, hits, access speed, site
SCORE, decision making, creativity, Intranet, downtime, site click through,
Extranet, trade offs, telecommunications and IT productive hours %, Intranet,
platform, management information systems Extranet, % outsourcing,
(MIS), web design and management, cloud ITER, budget ratio, security
computing, systems, time management, breaches, data storage, EDI,
synergy, recruitment appraisal, SEO, web position, quality of data,
information flow map, security,mystery information overload, project
shopper, teleworking, cascade success, internal service
investment,quantitative analysis, cost cutting, satisfaction levels, effective
time keeping, systems analysis, team building, headcount, % mentoring
training, artificial intelligence, quantitative
analysis, modeling, encryption, recruitment
appraisal, internal service satisfaction, software
alignment, E-enablement.
Product/ service Planning and monitoring, budgeting,innovation
development matrix, balanced scorecard, mosaic
management, prioritisation, successes failures/
lessons learnt, trade offs, MBO, succession
planning,investment appraisal, TBC,
technology audit, SCORE, quality circles,
decision making, recruitment appraisal,
creativity, product age profile, period of grace,
trade offs, halo effect, identification of new
product/ service concepts, synergy,
cannabilisation, protocol, IPLC, certification,
cascade investment, technology transfer, first
mover advantage, time
management,recruitment appraisal, IPR,
successful development/ commercialisation,
team building, training,internal service
satisfaction
Product age spread, R&D
%,ideas, strategic fit, budget
ratio, protocol score, total
cycle time, project review,
team creation, testing, %
outsourcing, NPDER, budget
ratio, license fees, IPR%, IPR
infringements, IPR
maintenance costs, royalty
rate %, time, productive
hours %, budget,
specification, project success,
internal service satisfaction
levels, effective headcount, %
mentoring

Contingency Authority and responsibility, planning and Risk score, response times,
planning monitoring, budgeting, successes failures/ budget ratio, KFR, %
lessons learnt, creativity, SCORE, investment outsourcing, % SOP, %
appraisal, assumptions, high risk/high training, % above/below
probability, Black Swan theory, failure points, barrier conditions, success
reducing potential for failure, setting trigger rates, % budget
points, action plan, risk profile, stage gate, team
building, communication, training, TEWT,
simulations, role play, impact analysis

Establish current performance, benchmark and target levels

For each monitoring module, one can then establish what the current level of performance is
in a measurable and understandable way. This is the current performance. From industry
sources, the benchmark level can normally be introduced (getting to benchmarks is often a
difficult process and one requiring a mixture of low cunning and/or sophisticated analysis).
Then a target level of achievement can be entered. Let us take an example of a financial
management module for an established manufacturing company and what it will tell us.

Financial knowledge centre monitoring components

 Factor Current Benchmark Target
Gross profit % 68 52 72
ROCE % 13 10 20
FCF 12 n/a 10
BEV/EBITDA 0.2 n/a 0.2
Gearing (DER) 15 38 15
Debt age (years) 8.5 6.3 10
Interest cover X 8.3 3.7 10
AER % 8 12 6
SER % 10 12 6
Debtor length (days) 102 95 60
Creditor length (days) 60 63 60
Stock turn/year 5 4 8
Current ratio 4 3 4
Budget ratio 95 n/a n/a
Capex ratio 8 4 7
WCR 1.7 3.2 1.7
Z score 3 7 3
Tax charge % 12 19 10
Depreciation % 15 12 n/a
Cost of finance % 3 8 3
EFT 82 n/a 88
Overdue accounts % 2 n/a 1
STP% 92 n/a 95
FER% 3 n/a 2.6
Project success ratio 90 n/a 90
Internal satisfaction level % 67 n/a 90
Effective headcount % 64 n/a 75

We can gain an enormous amount of information and control from such a chart, but obviously
not all components will meet the criteria of being a KPI otherwise we are back into the
problem of measuring everything and not concentrating on a limited number of core criteria.

Add KPI project control elements

This ratio based analysis is combined with a review of individual projects normally based
around the three key performance criteria, whether the project is on time, on budget and on
specification. For projects involving significant expenditure the measurement of stage gate
components will also significantly add to the level of control at a knowledge center level.
An example from the same knowledge centre would look like this:

Project Due date On time On budget On spec Stage gate

Debt refinancing August Yes Yes Yes None
Tax review September Yes Yes Yes None
Sales insurance August Yes Yes Yes None

How do I use such a format to develop and understanding of what is a KPI?

As different individuals and organisations will put a different emphasis on each item of
information a definitive list of what is and what is not a KPI will depend on individual
decisions, and will vary considerably according to the stage of company development. Start
up enterprises need to place their emphasis on structural factors; established companies on
operational performance.

However, one can set some guidelines. The most rapid way to establish the KPI within any set
of monitoring information is to work through the three criteria in sequence.

Is the control information key to the success of the organisation?

Can we measure it and influence it?
Does it provide leading edge indications of future developments?

Which measures in the above chart are key?

Gross profit is one key measure to the success of the organisation. Research shows that
survival rates are linked to levels of gross profit; gross profit margins above that of the
competition provide clear evidence of competitive advantage.

Return on capital employed is another key measure of the success of the organisation. The
ability to use investment effectively is central to effective long term development.

Z score is a measure of the liquidity of the enterprise and clearly defines positive or negative
trends.

It would be the Ibis argument that the other components of the chart are not key they are
valuable items of information but are not make or break aspects of company management
(unless they are grotesquely different from benchmark values).

Are these performance measures can we quantify them and influence them?

Yes

Do these provide leading edge indications of future performance?

Yes

The conclusion from this analysis is that in financial reporting the company should
concentrate on gross profit, return on capital employed and Z scores as their key performance
indicators. Both gross profit and return on capital employed are part of the model balanced
scorecard for overall objectives that Ibis propose for the majority of enterprises as part of their
planning platform.

Other components within the financial reporting module that might be considered as KPI's are
factors such as the levels of gearing (debt/ equity ratio DER), project success rates, bad debt
rates, and free cash flow (FCF). Including time, budget and specification to project reporting
would also be a natural addition.

The balanced scorecard and KPI's

In addition to the creation of the enterprise balanced scorecard, in which gross profit, return
on capital and Z scores are standard elements, the identification of KPI's in each of the
operational areas or knowledge centres also assists the enterprise in plan development. These
KPI's will change over time, but their creation as part of the initial creation of each knowledge
centre will focus and direct their operational activities.

KPI's and benchmarks

One of the most valuable contributions that KPI analysis can deliver is an understanding of
the true nature of the competitive environment. The Ibis analysis looks at the enterprise on the
basis of knowledge centers as a starting point. From that one can establish the KPI's and the
sensible reference points for measurement. These will vary from knowledge center to
knowledge center with a mixture of global non-sector specific, global sector specific,
naational market non-sector specific and local sector specific. A typical structure would
comprise the following emphasis on benchmark creation for each knowledge center:

Administration an emphasis on global non- sector specific;

IT an emphasis on global non-sector specific;
Finance a mixture of national market specific and global sector specific;
Production/ service delivery global sector specific;
Personnel - national market non-sector specific;
Marketing a mixture of global sector specific and local sector specific;
New product development global sector specific

When this approach is introduced, there is a rapid re-assessment of the true competitive
position of the enterprise or organisation.

KPI's, benchmarks and prioritisation

Once the organisation has identified the relevant KPI's and benchmarks, priorities for change
and potential returns on investment become clearer. A forthcoming article on the development
of Greece before and since joining the euro zone which will be available on the controversial
cases page demonstrates quite clearly where Greece failed in its economic, fiscal and political
development and where the emphasis for change should have been placed.

KPI's and the management information system

In a decentralised planning system focused around knowledge centers the choice of key
performance indicators is the first stage in the re-evaluation of the information system to
make it more valuable and relevant to the operating unit rather than one that is centrally
provided.

Thus the choices of KPI determine what will drive that part of the enterprise and what
information must be collected to analyse and manage it. Such information gathering or
software choices create information networks that are relevant and provide data which is used
specifically for operational purposes, reducing information overload and information for
information sake.

Where else are KPI's valuable?

The KPI is central to a number of other elements in the planning platform which provides the
basis for answering the three crucial planning questions:

Where are we?

Where do we want to be (and when)?
How are we going to get there cost effectively?

In addition to the creation of knowledge centres and business monitoring, KPI's have a vital
role to play in:

Action planning and implementation with an emphasis on management by objectives which

will include a standardised rate of return and detailed project control;

Training as part of a company wide approach to focusing staff and management on essential
operational requirements;

Central to business planning as a core part of the business plan outline;

Identification of necessary actions in change management, exit planning and survival and
recovery planning;

They set priorities for investment appraisal, and the choice of emphasis that should be given
to the main strategies within the golden circle, consolidation (including cost cutting), market
penetration, ,market development and product development.

Training on key performance indicators, the creation of a business plan and standard operating
procedures is available from Ibis.

The KPI pack - a standard part of Ibis enterprise development

One of the first steps in the creation and maintenance of expert systems must be the creation
of knowledge centers and the identification of relevant key performance indicators and
benchmarks. To assist in the rapid creation of such bottom up planning units, Ibis has
identified a basic set of key performance indicators which should serve as a backbone for any
enterprise monitoring system, coupled with typical benchmarks for each main sector. Once
these are introduced, the specific benchmark requirements of the enterprise can be added so
that competitive advantage can be continuously improved. This key performance indicator
and benchmarking leads seamlessly into improved planning and control

HOSPITAL INDICATORS & PERFORMANCE

In order to strengthen evaluation and monitoring capacities, managerial training as well as

trainings in HMIS was given to the hospitals in charge. The performance efficiency of the
hospitals is being judged through Performance Indicators viz.

1. BOR: Bed Occupancy Rate which reflects the popularity of the hospital in terms of
inpatients.
2. TOR : Turn Over Rate indicates the speed with which patients on any bed are rotated,
complicates cases => smaller TOR
3. Small treatment diseases => Larger TOR
4. AVLS: Average Length Of stay indicates the time the patient is retained in the
hospital.
5. OP/ IP Outpatient/Inpatient Ratio: Indicator of the manner in which inpatient
services are being utilized in the hospital.
6. Surgeries: Numbers of Surgeries indicate the provision and utilization of surgical
operation facilities.
7. Number of Deliveries: another parameter to judge the functioning of a hospital
8. Number of X-rays Scans: Utilization of X-rays and scanning machines provides a
good indicator of how the hospital is functioning.
9. Number of Lab Tests indicates the availability and efficiency of diagnostic facilities
in a hospital

Performa and reporting formats have been made uniform for periodical reporting.
Monthly reports are received by the 10 of succeeding month. The report is compared with the
report of previous month and same month of previous year. All HPI are reviewed in joint
meetings of Civil Surgeons and DMC by senior heads. Feedback of the information to DMCs
for reconciliation of discrepancies observed and rectification of the bottlenecks is sent
regularly. All HPI have shown Manifold increase.

A continuous monitoring program has been implemented under which each DMC reviews the
overall performance of the hospitals in the district and SMO In charge review the
performance of each specialist doctor in their hospitals against the fixed benchmarks. Selected
hospitals are being computerized to report accurate data and guide information. All the 17
DMC offices have been computerized to analyze and transfer data of all the health institutions
to H.Q. through internet. Special trainings have been given to the existing staff for handling
the computers both for public utility and internal information. Rigorous monitoring can
sensitize the management & providers and bring overall improvement in the health delivery.

The performance of hospitals are graded on the basis of indicators viz. waste management,
cleanliness, referral system, presence of vital drugs, swap test, user charges are core quality
indicators the introduction of whom there is marked improvement in the functioning and
performance of hospitals. It has helped in positive peer pressure and help hospital to work as
cohesive units.

Burden of disease is the second major part of HMIS All the diseases have been
properly coded on the basis of Xth revision of the ICD codes by WHO. Five leading cause
groups of diseases of morbidity were evaluated for each district and the recompiled for all
the secondary health care institutions of Punjab thus giving a view of the most prevalent
diseases in the institution