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Learning session on “KPI for Business Performance Analysis”

Facilitated by: Rupak Zaidi, KPI, Business & Management Consultant [[email protected]] 1

KPI for Business Performance Analysis

• Rupak M Nasrullah Zaidi, KPI, HR, OD Practitioner, Business & Management Consultant

• KPI & Performance Consultant • Business & Management Consultant • Senior Fellow, Management & Strategy Institute, USA • International Professional Member, Association of Talent Development

(ATD), USA • Member, Certified Professional Trainers’ Network, Canada • Member, American Management Association, USA • Consultant for HR & Organization Development

Email: [email protected], FB: f:/zaidirupak Cell: 01936000036, 01799985299, 01740868520



Easy & Better for us

Be VALUE able to get POWER in Professional area

Objective of the session

• Exchange the views regarding concept and practices of KPI

• Share knowledge on Business Performance Area • Participate cross learning on “Drive Business

Performance through KPI based PMS”



Indicator • Means: Measurement factor/ areas • Time factor: within this month/ this week/

year etc • Quality / quantity standard: 10/15/ 0%

error/ 1 % error/ 1 crore etc • Cost • Profitability • Sales Volume • Retention • Engagement • Learning

Performance Indicator

• Measurement areas of Results

• Differ due to different positions

• NOT Target/ Goal • Measurement area of Target

/ GOAL Achievement



KEY Performance Indicator

• Measurement areas of Key Results

• NOT all results • Measurement area of Target /

GOAL Achievement [Key Goals]

Result Area

•Area through which the Result is visible •Example: Profit, Compliance



Goal/ Target

• Future oriented • Based on Prediction • Sometimes Goal setting

influenced by Performance Indicator

Measures/ Source of Information

• Instrument/ Tools/ Record / report through which achievement can be identified

• Balance Sheet for measuring organizational Performance

• Sales volume for measuring performance of Sales people



Consultancy Service by Rupak Zaidi • KPI Setting • Performance Improvement Strategy development • Business Process reengineering • Employee Accountability & Monitoring System development • Manpower Assessment • Competency Mapping • Setting 5 S & Kaizen culture • Business Strategy Development • Visual Management System development • Business Automation • HR Auditing • Business Consultancy • Management Consultancy

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KPI: Insights

Indicator not target 1

Universal 2

Relevant 4

Aligned 3

Standard measurement tools

5

More focused on number oriented goal

7

Cascade down to individual

6

Verifiable 9 Cost Effective 8



Understand KPIs KPI Typology KPI Selection

KPI Alignment KPI Documentation Working with

Targets The World of

KPIs Data Visualization Course

Review KPI Taxonomy Data Gathering

THE VALUE ADDED BY KPIs

Clarity

Improvement

Focus

Communication

The World of KPIs

13






TERMINOLOGY STANDARDS Objectives

start with

Verb

KPIs start with

$ = Value of

# = Number of

% = Percentage of

Initiatives start with

Noun

Increase customer satisfaction $ Revenue per client CRM software implementation

# Complaints received

% Customer satisfaction

Understand KPIs 14



Program for Sales Personnel by Rupak Zaidi • Selling Skill for Show Room Sales Persons • Customer Service Excellence for Sales Professional • Salesmanship Master Class • Competitor Analysis: Tool for business decision • Customer Service Master Class • Brand Leadership Master Class • Blue Ocean Strategy for Sales • Innovative Business Strategy • The Sales PRO: Think, Act & Sale like PRO • Emotional Intelligence for Sales Success • Negotiation Skill for Sales Professional • LEAN Selling: Concept & Competencies • Customer Retention Strategies

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Understand KPIs KPI Typology KPI Selection KPI Documentation Working with



Review KPI Taxonomy Data Gathering KPI Alignment

% Employee satisfaction

$ Turnover

Finalise project by 31 December

# Clients from referrals

# Employees

% Projects delivered on time and on budget

Quality

% Defect rate

$ Budget

Increase market share to 28%

IDENTIFY THE KPIs

KPI Definition: A measurable expression for the achievement of a desired level of results in an area relevant to the evaluated entity’s activity. (The KPI Institute)

Understand KPIs 16



Types of KPI

As per Contribution

Strategic

Operational

Types of KPI

As per Focus

Leading

Lagging








LEADING VS LAGGING KPIs

Source: Institute for Evidence Based Change (2017)

Leading indicators = measure things that address what can create future value

Lagging indicators = look back at past performance

Vs.

KPI Typology 19





Task: • Cluster the following examples into leading and lagging KPIs.


No. KPI examples Leading or lagging?

1 % Employee engagement

2 % Customers from referrals

3 % Customer satisfaction

4 % Market share

5 $ Profit

6 % Returning customers

7 # Service lead time

8 % Staff with competencies at desired level

KPI Typology 20







KPI Alignment


KPI Typology 21

Types of KPI

Output

Outcome

Impact

As per Result Chain



Types of KPI

As per measurement

Qualitative Quantitative






QUALITATIVE VS QUANTITATIVE KPIs

Source: Public Record Office Victoria, Australia (2010)

Eurostat, European Union (2010)

“Quantitative KPIs are likely to be based on system collected statistics such as number of users whereas qualitative KPIs may be based on more subjective measurements from user interviews and surveys.”

Public Record Office Victoria, Australia (2010)

All KPIs are quantitative, but they can measure different aspects of an objective, such as: •Volume - # Products sold •Quality - % Products error rate, % Customer satisfaction with products bought •Monetary values - $ Sales

KPI Typology 24

“Quality KPIs are statistical measures that give an indication of output quality. However, some quality indicators can also give an indication of process quality.”

ESS Quality Glossary, European Union (2010)







KPI Alignment

Find in the below list the KPIs that reflect quality as perception.

IDENTIFY THE KPIs REFLECTING QUALITY

1. $ Turnover

2. # Production cycle time

3. # Brand image index

4. # Customer satisfaction score

5. % Equipment utilization rate

6. % Error rates

7. % Employee engagement

8. $ Operating costs

9. % Market share

10. # Service quality rating

KPI Typology 25






EFFICIENCY VS EFFECTIVENESS KPIS

Desired output/outcome Inputs Processes Outputs Outcomes

Effectiveness

Efficiency

KPI Typology 26








EFFICIENCY VS EFFECTIVENESS KPIS Efficiency = extent to which time, effort or cost are well used for the desired results.

KPI examples:

Cost per call

Time to process requests

Equipment utilization rate

Do things right!

Effectiveness = the extent to which a desired outputs or outcomes is achieved.

KPI examples:

Sales

Customer satisfaction index

Compliance with quality standards

Do the right thing!

KPI Typology 27

As per Function [based on Balanced Scorecard]

Financial

Learning & Growth

Internal Business Process/

Operational

Customer

Types of KPI



BSC Perspectives

• What must we be great in performing, and how do we train our people to get up to that level?

• What climate and culture nurtures growth? • What do we have to do in developing and training

our people to achieve the other objectives?

Knowledge and Innovation Organizational

Capacity

• In which processes must we be the best to win customers?

• What internal activities do we need to sustain competencies?

Efficiency Internal Process

• What are the financial targets? • What drives these targets? • What kind of profit and revenue to achieve? • In a nonprofit organization, what budget guides you?

Financial Performance

Financial Stewardship

• Who are the customers? • How do you delight them? • What segments do you wish to address? • What goals do you wish to achieve with partners? • What are your goals for the distribution channel?

Satisfaction Customer/ Stakeholder

Key Focuses Key Concept Perspective

Choosing your perspective

•The Four perspective that we mentioned is not mandatory

•Kaplan and Norton themselves suggest that the four perspectives “should be considered a template, not a straitjacket”

•Many organizations have developed perspectives for innovation, research and development, environment, suppliers, leadership, and the community.



Choosing your perspective • The choice of perspectives for your Balanced Scorecard

should ultimately be based on what is necessary to tell the story of your strategy and create a competitive advantage for your organization.

• For example, a manufacturing firm may rely heavily on suppliers in order to manage its operations to the maximum of efficiency. Adding a perspective devoted to supplier relations could make good business sense for this organization





STRATEGY MAP

Source: The KPI Institute (2017)

The World of

KPIs 32







KPI DNA MAP: Example Customer Service (CS) example:

Costs $ Cost per call $ Customer Service costs

Timeliness # Time to solve customer tickets % Customer tickets solved on time

Quality # Errors in processing tickets per agent

% Customer satisfaction with CS

Quantity % Customer tickets solved per hour # Customer tickets solved

KPI Taxonomy 33





Scenario: • You are part of the management team in your

organization. Based on the context provided, you have to recreate the KPI taxonomy as per KPI DNA Map

KPI DNA MAP: Exercise

KPI Taxonomy 34







KPI Alignment

KPI DNA MAP

KPI Taxonomy 35

• Production costs seem to have increased by 10% during the last quarter, negatively influencing the cost per item, as well. A possible cause for these financial results is the low production capacity utilization rate and a low productivity in terms of units per man-hour and items produced per hour.

• Furthermore, direct costs for material variance has increased as well to $ 1 million due to changing the main supplier.

• All these events negatively impacted the results for budget variance, although the production output stayed the same.

• A positive trend was noticed in terms of production quality as the defect rate was reduced to 2% and less waste was generated.

• Regarding timeliness, the production cycle and production schedule attainment targets were met.

Production – Performance report for the 4th Q of 2017





PRODUCTION

KPI DNA MAP

Timeliness Costs

Quality Quantity

KPI Taxonomy 36



Program for any Professionals by Rupak Zaidi

• Business Intelligence for Managers • Managerial Competencies Master Class • High Impact Middle Management • Think Like CEO: Organizational Leadership Approach • Managerial Communication Master Class • Business Communication Master Class • Customer Service Master Class • Organizational Leadership Master Class

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Area of DNA Map KPI Cost % total cost increase

% Increase cost / item % capacity utilization % increase cost of material

Timeliness # Production cycle time [days] # days to complete production

Quality % reduction of defect rate # reduction of wastage rate

Quantity # unit per man hour # items produced per hour







KPI Alignment

ALLOCATE KPIs FOR EACH OBJECTIVE Financial

Increase profitability

Maintain financial discipline

Customer

Maintain high levels of customer satisfaction

Serve new market segments profitability

Internal Processes

Ensure quality services Improve process management capability

People, Learning & Growth

Nurture engagement, creativity and innovation

Develop workforce skills and competences

Ensure talent availability

No. KPIs list

1 $ Operating expenses

2 % Employees meeting professional development requirements

3 # Complaints from customers

4 % Profitable customers

5 % Budget variance

6 # Innovation ideas

7 # Employee engagement index

8 # Training hours per full time equivalent (FTE)

9 % Market share

10 % Net profit margin

11 # Procedures reviewed

12 $ Net cash flow

13 % On time delivery of orders

14 # Positions filled

15 % Customer satisfaction

16 % Orders error rate

17 % Critical positions with succession plans in place

18 % Processes improved

KPI Selection 39

Program for any Professionals by Rupak Zaidi

• Competitor Analysis for better business • Emotional Intelligence at work • Employee Engagement • Employee Retention • Interpersonal Skills for organizational excellence • Workplace Innovation • The Power of Positive Thinking • Developing GREAT Managers: 10 Power Strategy

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KPI Alignment

Objective KPI

People, Learning & Growth Nurture engagement, creativity and innovation 6, 7 Develop workforce skills and competences 2, 8 Ensure talent availability 14, 17

Financial Increase profitability 1, 10 Maintain financial discipline 5, 12

Customer Maintain high levels of customer satisfaction 3, 15 Serve new market segments profitability 4, 9,

Internal Processes Ensure quality services 13, 16 Improve process management capability 11, 18






VALUE FLOW ANALYSIS WHAT?

• Logical model to indicate the value generation from inputs, process outputs and outcomes.

WHY? • Gain insight into how the objective can be measured from different perspectives.

• Provides an overview of the process involved by achieving the objective.

• Enables the selection of the most relevant KPIs for the objective.

1

2

3

KPI Selection 42








VALUE FLOW ANALYSIS

Improve customer satisfaction with service levels

% Solved inquiries # Client needs identified

% Customer satisfaction index % Returning customers

INPUTS PROCESSES OUTPUTS OUTCOMES OBJECTIVES

# Customer service representatives

$ Customer engagement budget

# Time to answer an inquiry # Meetings with key customer

KPI Selection 43

Concept of Business

Input Output = Input Output > Input Output <



Conversion/ Transformation

• Efficiency • Intelligence • Management • Effectiveness • Productivity • Process Reengineering • Strategy

Value proposition

Cost structure Revenue streams

• How might you make $ from this? • What value, other than money, are you hoping

to create?

Customer relationships

Channels

Customer segments

Key activities

Key resources

Key partners

What external partnerships should

you invest in?

• Mentors? • Lawyers? • Distributors? • Suppliers?

How much time and money will be required to do this?

How will customers find out about you?

How will you get products

to them?

Who are your paying customers?

Do you have any non-paying customers?

How large is this group?

Do you have multiple customer segments?

What types of interactions will your customers expect

to have with you?

What will it cost for:

Manufacturing? Intellectual property? Human resources?

What will your business spend the most time doing?

Product development? Sales? Other?

Canvas Model



Program for Operational Excellence by Rupak Zaidi

• 5 S Office Management to Increase Efficiency & Profitability

• Waste-the silent Killer of Profit: Discover & Eliminate • Job Methods (JM) Training • Job Safety (JS) Training • Office Kaizen for increasing Productivity • Lean Office for Productivity & Profitability • Overall Equipment Effectiveness • Standard Work Procedure

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Business Performance Areas • Business Efficiency/ Financial Efficiency • Production Efficiency • Sales Efficiency • Business Development Efficiency • Fund Management Efficiency • Process Efficiency • Employer Branding/ HR Practice efficiency • Supply Chain Efficiency • Cost Efficiency • Channel Efficiency • Technical/ Technological efficiency



Business Efficiency/ Financial Efficiency

Cost per 1 taka profit Total Cost/ Net Profit Monthly Investment per 1 taka profit

Total Investment/ Net Profit

Yearly

Net Profit Operating Profit

Production Efficiency

Product Value/ Man Hour Total Sale/ Total Man Hour

worked Monthly

% of Raw Material Cost to Sales

(Total Sale/ Total Raw Material used)%

Quarterly

Wastage Rate Wastage/ Total Raw Material Monthly

Rejection Rate Rejected Unit/ Total Production

or Rejected value/ total sales Monthly



Business Development Efficiency

No of New Customer in last 3 months

Number Monthly

Cost per lead Total Branding & Promotional

Cost/ No of new customer Yearly

Customer Conversion ratio No of customer generated/ No

of Customer visited Monthly

Customer Retention rate

Total number of old customer ordered this year/ Total number

of customer Yearly

Sales Efficiency % of Salary to Sales (Total Sale/ Total Salary)% Monthly

Cost per Lead Total Branding & Promotional

Cost/ No of new customer Monthly

Gross Profit Margin (Revenue-Cost)/Revenue*100 Yearly % of Credit Sales Credit Sales/Total Sales % Monthly Average Credit Period per Lac

(No of days * Amount )/1 lac Yearly



Characteristics of KPI based PMS

• Objective oriented Assessment System • Holistic view of Performance • Link with different point of supply chain • Unbiased PMS • Balanced PMS [Balancing with different aspect

of Balanced Scorecard or CEEPP]

What are the benefits of KPI

• Individual Benefit • Supervisor’s Benefit • Organization’s Benefit



Why KPI for ME

• Clarification of Expectation and Standard • SW analysis • Proper Planning • Self Monitoring • Focus Setting

Why KPI for Department?

Analyze SW of department

Distribute goal among the members impartially

Monitor the overall goal achievement

Smart reporting

Strategic Decision Making

Resource allocation

Ensure performance through LEAD indicator



Organizational Benefit

• Monitor performance of different processes with the minimum time and effort needed

• Using KPI based PMS for impartial evaluation

• Encourage teamwork • Encourage Performance • Guiding Action Plan

Area of Excellence for KPI Professional

• Area of Excellence (AoE)-1: Business Competency • AoE-2: Process Competency • AoE-3: Result Chain Analysis Competency • AoE-4: Functional Integration Competency • AoE-5: Role Profiling Competency • AoE-6: Project Management Competency • AoE-7: Goal Setting Competency



(AoE)-1: Business Competency

• Financial Intelligence • Business Value Driver • Business Strategy • Competitor Analysis • Organizational Comprehension • Management Skills • Personal Characteristics • Technical Competencies

Approaches of KPI

•Result based •Output •Outcome •Impact

•Task Based



Scope/ Level of KPI

•Organizational Level •Departmental / Team Level •Individual Level

Steps of KPI development & implementation program: Standard •Design/ Analyze Organizational Goal/ KPI •Design and analyze Functional/ Departmental Goal/KPI

• Identify and analyze Role or Deliverables of Individual to achieve functional/departmental goal/KPI

•Define the measurement criteria/ KPI of that deliverables



Steps of KPI development & implementation program: Standard • Design the Action Plan/ Job Description to achieve KPI • Design measurement Tools for measuring KPI

achievement • Design Assessment method and format • Design KPI achievement monitoring tools and SOP • Design method and format for KPI achievement analysis • Link with reward and punishment

Example of organizational KPI

• Profitability • Net Profit • Operating Profit • Number of Customer • Market Share • Financial Ratio • Productivity • Expansion Rate



KPI Example: Sales Department •Volume of Sales •% of growth •No of Customer •Cost to Sales •Profitability •% of return

KPI Example: Production •Unit of Production •Productivity •Utilization of Manpower •Utilization of Capacity •Cost per unit •Wastage Rate



Some Advance HR Program by Rupak Zaidi

• HR Accounting Master Class • Business Intelligence for HR Professionals • Financial Intelligence for HR • HR Analytics Maser Class • Competency Mapping Master Class • Talent Management Master Class • Assessment Centre Master Class • TNA-Budget-ROI of Training T

his

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art

of

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Format KRA (A)

KPI (B)

Weight (C)

Target (D)

Achievement

(E)

Score (F) If the higher the

better: (E/D)*100 If the lower the

better: (D/E)*100

Final Score F*C

Recruitment

Lead time to

hire

15%

60 day

s

70 days

86 13



Model of Success Management System

Competency

Engagement

Effort

Performance

Profit

Some Advance HR Program by Rupak Zaidi

• TOT Master Class • Facilitation Skill Master Class • Psychometric Test in Recruitment & Selection • Recruitment & Turnover Cost Management • ROI of HR • Organization Development • Balanced Scorecard Master Class

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CEEPP model for Success Management System

Competency

Engagement

Effort

Performance

Profit

CEEPP • Ultimate goal

• Means Achievement

• Means initiative or action and its continuity

• Means attachment both physically and mentally

• Comprised of Knowledge, Skill and Attitude

Waste areas Over-production

Producing more than what the customer needs

Inventory Building and storing extra services the

customer has not ordered

Transportation Moving product from one

place to another

Defects Reprocessing, or correcting

work

Over-processing Adding excess value when the

customer does not require it

Unnecessary Motion Extra physical/mental motion that

doesn’t add value

Intellect Not using employees full intellectual contribution

Waiting Employees waiting for another

equipment, process or information

Waste Waste



DOWN TIME: Defect, Over Production, Waiting Loss, Not utilized workforce, Transportation, Inventory, Motion, Excessive Process

Some example of KPI



KPI: Salary Competitiveness Ratio (SCR)

SCR (Industry)

Salary offered by your company

Average salary offered in the industry or sector

SCR (Competitor)

Salary offered by your company

Salary offered by your competitor

KPI: Cash Conversion Cycle [CCC]

Cash conversion cycle (also known as cash cycle ) helps to answer the key performance question ‘How well are we doing at managing a healthy cash flow?’ This metric is usually reported annually, but if cash flow is a concern it should be measured quarterly or even monthly.

Cash Conversion Cycle (CCC)

Days Inventory Outstanding (DIO)

Days Sales Outstanding (DSO)

Days Payable Outstanding (DPO)



Days of Inventory Outstanding [DIO]

•DIO, tells you how many days inventory sits on the shelf on average.

•Lower number is better •But not so low that you don’t have sufficient inventory and are missing potential sales.

Calculation of CCC

• Calculation of DIO [Days of Inventory Outstanding]

• Calculate Cost of sales per day: Cost of Goods Sold/365 • Calculate average inventory figure: (Beginning Inventory +

Ending Inventory )/2 • So, DIO = Average Inventory Figure / Cost of sales per day



Days Sales Outstanding or DSO

• Days Sales Outstanding or DSO can be described as average Accounts Receivable divided by Revenue per day

• DSO tells you how many days after the sale it takes people to pay you on average.

• A lower number is better • DSO = [(BegAR + EndAR) / 2] / (Revenue / 365)

Calculation of CCC

• Calculate DSO:

• Calculate Net sales per Day [yearly sales/ 365] • Calculate average accounts receivable • So, DSO = Average Account receivable/ net sale per day



Operating Cycle

• Operating Cycle = DSO + DIO • This is how many days it takes for a company to process raw material

and/or inventory and collect cash from the sale. • Basically the Operating Cycle tells you how many days it takes for

something to go from first being in inventory to receiving the cash after the sale.

• You want this number to be low meaning that merchandise isn’t sitting on shelves too long and customers are paying relatively quickly.

Days of Payables Outstanding [DPO]

• Days of Payables Outstanding tells you how many days the company takes to pay its suppliers.

• Higher is better • DPO = [(BegAP+EndAP) / 2] / (COGS / 365)



Calculation of CCC

• Calculate DPO:

• Calculate cost of sales per day • Calculate average accounts payable figure • DPO = Average account payable / cost of sales per day • Now: CCC = DIO + DSO – DPO

KPI: Cash flow solvency ratio The key performance question cash flow solvency ratio helps to answer is: ‘How easily are we going to meet our debts?’

Cash flow solvency

ration

Cash flow From Operations

Total Liabilities

If you were to decide to seek funding, this metric would be of particular interest to decision makers at the funding organization because it indicates how easily you can pay your current debts. The higher the ratio, the better as it indicates that there is plenty of money in the pot to pay the debts.



Developing Customer, Sales and Marketing KPIs

Asking if Your Customers Would Recommend You: Net Promoter Score (NPS)

Developed and trademarked by Fred Reichheld, Bain & Company and Satmetrix, the Net Promoter Score (NPS) is one option. Introduced by Reichheld in his 2003 Harvard Business Review article as the ‘one number you need to grow’ the metric is based on just one simple question: ‘How likely is it that you would recommend xxxx company to a friend or colleague?’



Asking if Your Customers Would Recommend You (NPS)

NPS is based on the fundamental premise that every company’s customers can be divided into three groups

Promoters: Loyal enthusiastic customers

who will continue to buy from you and recommend you to others. Promoters

fuel growth.

Passives: Satisfied but unenthusiastic customers who may or may not buy from you again. Passives are vulnerable to a well-positioned competitor

offer and don’t necessarily feel any loyalty to you.

Detractors: Unhappy customers who can actively

damage your business through negative word of

mouth. Detractors can impede growth.

Understanding the NPS formula Using a scale of 0 to 10, where 0 indicated ‘not at all likely’ and 10 indicate ‘extremely likely’ customers are asked to answer the question: ‘How likely is it that you would recommend [insert company or product name] to a friend or colleague?’ •✓ Promoters are customers that indicated a score of 9–10 •✓ Passives are customers that indicated a score of 7–8 •✓ Detractors are customers that indicated a score of 0–6 Empirical research has shown that there is a striking correlation



Measuring NPS in practice

• The key performance question NPS helps to answer is: ‘To what extent are our customers willing to recommend us? The formula for calculating NPS is as follows:

NPS Percentage of

Promoters Percentage of

Detractors

Measuring Customer Lifetime Value (CLV)

• The key performance question Customer Lifetime Value (CLV) helps to answer is: ‘How well do we understand the financial value from our customer relationships?’

Average Value of a Sale

Number of Repeat Transactions

Average Retention Time in Months or Years for a

Typical Customer

CLV



KPI: Capacity Utilization Rate • The key performance question Capacity Utilization Rate helps to

answer is: To what extent are we leveraging our full production/work potential?

• For example say your production plant could potentially

produces 20,000 units per day but only produces 15,000 units per day.

• The CUR is: 15,000/20,000 × 100 = 75 per cent

CUR

Actual capacity over specified time period x 100

Possible capacity over specified time period

Measuring rework levels in practice

• The key performance question Rework Level helps to answer is: How effectively are we driving waste out of our processes?

Rework Levels rate

Number of defective products requiring rework

over a specific period

Total number of products produced over a specific

period

100



Contact details

Email: [email protected], FB: f:/zaidirupak

LinkedIn: [email protected] Cell:, 01799985299, 01936000036,

01740868520

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