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Performance Measures andService Level Agreements
Results Based ManagementWorkshop
Inter-American Development Bank
INCAE Business SchoolMontefresco, Nicaragua
October 26, 2011Instructor: John A. Miller
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Welcome and Introductions
• Ground Rules• Agenda/Session Overview• Instructor• Example SLA Projects
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Ground Rules
• Open, free flowing discussion is welcome andencouraged
• Ask questions and share concerns• Challenge instructor and each other• Bring in your experience• Have fun
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AgendaOctober 26, 2011
Session Topic Time Objective/Deliverable1 Introduction to Performance Measurements and
Service Level Agreements Definitions Terminology Benefits
50 Participants understand thebasic principles, terminology,and steps to implement PM andSLA
2 Workshop to develop and document activitiesand services
50 List of key activities andservices provided
3 Performance management and measurement Types of measures Products/Services provided Implementation requirements Data gathering and collection techniques
45 Participants understand theoverall steps, process, andrequirements, for performanceand measurement
4 Workshop to develop performance measuresand Service Level Agreements for selectedactivities and services
45 List of performancemeasurements for selectedactivities and services
5 Summary and next steps 20 Action plan to move forward
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Agenda Overview• Three hours 20 minutes• Content 50% to instruction and 50% for workshops• Customized program. All workshop materials, work product, and
workshop deliverables are specific to IDB• Each workshop is designed to produce a deliverable (work product)• Work product captured in electronic format• Work in department teams (4-6 people). Team based assignments in each
workshop
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Training Deliverables
• Preliminary list of activities and services foreach department of IDB attending the session
• Identification of performance measurementfor selected activities and services
• Identification of methods for assigningresources to activities and services
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John A. Miller• Recognized expert in cost, process, and
performance management
• Author of Implementing Activity-BasedManagement in Daily Operations
• Contact information:[email protected]
• Program Director for CAM-I andConsultant Adjunct with the AmericanProductivity & Quality Center (APQC)
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SLA Projects• Amoco• Union Pacific Resources Corporation• Al Ain Municipality (Abu Dhabi)• SEMATECH• Private Mortgage Insurance Inc.• FT DIX• Regence (Blue Cross/Blue Shield)• Dallas/Fort Worth Airport• U.S. Department of Fish and Wildlife (HR)• National Semiconductor
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Typical Departments
• Human Resources• Facilities Maintenance• Legal• Public relations• Accounting• Planning and Budgeting• Finance• Investor relations• Information Technology• Treasury
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Typical Revelations• Cost of internal services are unknown. Cost of the activities required to
perform the service are unknown
• In many cases internal services have never been defined orcommunicated with internal services
• Significant differences in the cost-to-serve internal customers
• Significant opportunities to improve services, processes, and activities
• 25-35% of activities don’t contribute to departmental goals or servicedelivery
• 60% of costs are consumed by 20% of the activities/services
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SLA’S--Requirements
• Define service offering• Define the customers (internal and external)
for services provided• Quantify the cost of services provided• Define the activities required to deliver the
services• Quantity the cost of activities used to deliver
the services
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SLA’S--Requirements
• Define performance measures• Focus on continuous improvement• Build overall organizational goals and
objectives into service offering• Seek feedback and comment from customers• Account for projects and one time
requirements
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SLA’S--Requirements
• Service charge back to customers (not always)• Communication, team work, and sharing with
other support departments
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Benefits
• Better alternative than traditional methods forcost determination and analysis
• Information for effective decision-making• Information to continuously improve processes
and reduce costs• A relationship between organizational cost and
organizational value• Methods to measure performance with
accountability
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Basic Mission
WorkActivities
Reso
urce
s
Prod
ucts
& S
ervi
ces
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Session 2
• Workshop to define resources, activities, andservices for each support department
• Presentation by attendees• Instructor Feedback
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Workshop #1
• Break into department groups• Define services• Define activities required to deliver each service
defined– Use verb and noun to describe activity– Adjective may be required
• One flip chart for each service/activities defined• Think key and significant
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Session # 3
Performance management and measurement• Definitions• Traditional performance measurement• PM Characteristics• PM requirments• Service performance
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Definitions• Performance Measures
– Activities• Quality• Time (cycle time)• Productivity (cost or units)
– Customer service measures (internal and external)• Quality• Time (cycle time)• Productivity (cost)
• Service Level Agreements– Written and documented agreements between service providers and users– Defines services provided– Service level– Performance measurements
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TraditionalPerformance Measurement
• Output only• Short-term• Lack of integration• Historical• Isolated and remote• Too complex• Not connected to the customer
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PM Characteristics• Alignment with strategy• Focus on key organizational capabilities• Translate the objectives of the organization into action• Generate bottom-up information based on top-down
guidance and provide drill-down capability• Integrate organizational capabilities, processes and enablers• Provide periodic performance evaluations and visibility• Promote performance improvement and learning
Remember, what gets measured gets done.
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Performance Measures
Use performance measures to: Type of measure
Quantify cost/unit of activity output
Measure the time to complete an activity or process
Measure the quality of activity outputs
Use performance measures to: Type of measure
Quantify cost/unit of activity output
Measure the time to complete an activity or process
Measure the quality of activity outputs
Productivity
Cycle-time
Quality
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Performance Measures
Indicators of the work performed and theresults achieved in an activity, process,service or organizational unit.
How well do we perform the activity?How well do we perform the activity?
Adapted from The CAM-I Glossary ofActivity-Based Management, Edited byNorm Raffish and Peter B.B. Turney,(Arlington: CAM-I, 1991.)
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PerformanceMeasurement Should Be…
• Measure the right things at the right time for the right people• Simple, but not simplistic• Accurate and credible• Balanced• Flexible• Linked to strategy• Controllable• Integrated• Comparable to something• Cost effective to produce and maintain• Drive improvement• Actionable• Realistic
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Service Performance
Time
Uni
t Cos
t per
Ser
vice
Out
put
Actual Unit Cost
Goal or budget unit cost
Benchmark
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Session 4
• This workshop builds on Workshop #1, Identify anddocument department activities and services
• Groups remain the same• Each group will identify performance measurements
for selected activities and services• Presentation to workshop attendees• Feedback from instructor
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Workshop #2• Select several services and activities. One flip chart for each service and
activity defined• Develop a quality, time, and quality for each service and activity selected• Document best estimate of the current service and activity performance
– Quality– Time– Productivity
• Indicate ideal service and activity performance– Quality– Time– Productivity
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Session 5
Summary and next steps• Leverage the information to improve service
performance• Link to improvement initiatives• Link to goals and objectives• Eliminate waste and duplication• Prioritize services for improvement• Share information with customers. Seek feedback
and comment
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Expanded Basic Mission
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Link Information to Everything• Process improvement initiatives• Performance measurement• Strategic planning• Operations planning• Goals and objectives• Compensation and rewards• Capital justification• Product/Service pricing and pricing models• Cost estimation• Capacity utilization• Budgeting• Management control systems
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• Points to areas to improve• Identifies causes of cost• Provides feedback to monitor improvement
efforts• Provides information for comparing activities
(benchmarking)• Tells managers what to fix• Set priorities for improvement
SupportsContinuous Improvement
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Link to Improvement Initiatives
TIME TOMARKET
Measurement
RE-ENGINEERING
MeasurementFeedback
Feedback
KAIZEN
Measurement
Feedback
TQM
Measurement
JUST INTIME
Measurement
SIX SIGMA
Measurement
FeedbackFeedback
Feedback
LEANMANUF.
Measurement
Feedback
BPR
Measurement
Feedback
SUPPLYCHAIN
Measurement
Feedback
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Link to Balanced ScorecardCustomers
andStakeholders
Financials
Learningand
Growth
InternalProcesses
StrategyGoals
PrioritiesValues
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Link Performance Measuresand Goals
Goal 1 Goal 2 Goal 3 Goal 4 Goal N
PM 1 H H L H H
PM 2 L L L L L
PM 3 L L L H H
PM 4 L H L L L
PM N L M L M M
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Link to GoalsGoal 1 Goal 2 Goal 3 Goal 4 Goal N
Service1
H H L H H
Service2
L L L L L
Service3
L L L H H
Service4
L H L L L
ServiceN
L M L M M
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Root Cause of Cost
Activity
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Prioritizing Services forImprovement
Service 1
Service 2
Service 3
High High High High Med Med
High
Med
Med Med MedMed
Low
Low
Low Low Low Low
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• Observations• Findings• Conclusions• Recommendations• Next Steps• Summary and wrap-up
Summary and Feedback