06 Performance Management and KPI

Question 1

Mention some of the (9) benefits of corporate performance management:

Answer 1

• Increase motivation: friendly competition among peer groups, urge people to work harder to reach goals.
• Consistent view of business: common definitions about metrics and what is cosidered as right.
• Reduce costs and redundancy: consolidate reporting systems and avoid silos.
• Empower users: give users self-service for information and analysis.
• Deliver actionable information: unable users to take actions.
• Communicate strategy: translate strategy and targets into concrete measures, clear picture of strategic objectives.
• Refine strategy: allowing minor strategic course corrections.
• Increase visibility: display daily operations and future performance estimations, avoiding to be surprised by unforeseen business developments.
• Increase coordination: departments working together, foster dialogue between staff and managers.

Question 2

What is the clasification of the (3) performance dashboard applications?

Answer 2

• Purpose: Monitoring > Convey information at a glance.
  
  • Components: dashboard scorecard, BI portal, “right time” data, alerts, agents.
• Purpose: Analysis > analyze exception conditions and drill to detail.
  
  • Components: multidimensional analysis, time-series analysis, reporting, what-if modeling, statistical modeling.
• Purpose: Management > improve alignment, coordination and collaboration.
  
  • Components: strategy maps, initiative management, collaboration annotation, workflow, usage monitoring.

Question 3

Explain the difference between a Dashboard and a Scorecard:

Answer 3

• Dashboard:
  
  • ​Measures performance
  • Used by supervisors and specialists
  • Focus on acting
  • Intraday-daily updates
  • Gives detailed data
  • Displays charts & tables
• Scorecard:
  
  • Charts/represents progress
  • Used by executives and managers
  • Focus on reviewing
  • Weekly, Quartely updates
  • Summarized data
  • Displays charts and comments

Question 4

Explain Balanced scorecard as a performance management tool:

Answer 4

• BSC is a quite common framework in practice
• Presents mixture of financial and non-financial measures
• Empirical nature (primarily lagging indicators)
• Narrows down corporate objectives to a short number of metrics (aprox. 20)
• Criticism:
  
  • ​BSC don’t give a baseline with clear recommendations
  • Fails to reflect the needs of stakeholders
  • Bias on financial stakeholders over the rest

Question 5

Explain the “Going MAD” (Monitor, Analyze, Detail):

Answer 5

Monitor > Graphical data > Executives (Strategic decisions)

Analyze > Dimensional data > Analysts (Tactical decisions)

Detail > Transactional data > Workers (Operative decisions)

Question 6

What are the (4) steps of the Performance Management Framework?

Answer 6

1. Strategize = vision, mission, values, objectives and incentives.
2. Plan = budgets, plans, targets, initiatives.
3. Monitor/Analyze = alerts, reports, dashboard, scorecards.
4. Act/Adjust = decisions, actions, forecasts, scenarios.

=> Consistent Data & Metrics

Question 7

What is a metric and what is a KPI?

Answer 7

Metric = is a measurement of business activity (examples: number of customers, total sales….)

KPI = a metric (business activity) measured against a goal (business objective) (examples: customer satisfaction, average sale amount, task completion rate).

Question 8

What are the differences between outcome metrics and driver metrics? Give examples of each of them.

Answer 8

• Outcome metrics (lagging indicators) = measure the output of business activity intended to be achieved by a strategy. Past activity that has already happened, often financial in nature.
  
  • Revenues, profits, customer satisfaction, patients healed..
• Driver metrics (leading indicators) = measure business activity that influences the results of the outcomes of KPI. Activity that happens between periods, track of current activity to make necessary adjustments.
  
  • Weekly, daily sales. Clients meetings. Customer contacs. Customer complaints. Open opportunities.

Question 9

Mention and define the characteristics of effective performance metrics:

Answer 9

• Strategic = good performance metrics embodies a strategic objective, monitors if an organization is on track.
• Simple = employees must understand what is measured and how it is calculated.
• Owned = every metric needs an owner responsible for the outcome.
• Actionable = employees should know corrective actions. Empowered employees are needed.
• Timely = metrics being updated frequently enough.
• Referencable = metrics having options to view its metadata (users can trust and use them).
• Accurate = “garbage in, garbage out”.
• Correlated = ensure metrics measure the desired output.
• Game-proof = ensure workers cannot circumvent metrics.
• Aligned = align performance metrics with corporate objectives.
• Standardized = distributed across departments and organizational levels and groups.
• Relevant = considering life cycles of performance metrics, must be refreshed, revised and/or discarded.

Question 10

Mention some criticism to KPIs:

Answer 10

• Importance on KPIs tend to be exaggerated
• Myopic view on the company (focus on reports…)
• Unilateral focus on financial targets
• Decision-making biases
• Key figure inflation