know you have a KRI when the CEO is in reality the person ultimately responsible for the measure.
For the private sector, key result indicators would include:
● Net profit before tax
● Net profit on key product lines
● Customer satisfaction (by customer group, showing the trend over an 18-month period)
● Return on capital employed
● Employee satisfaction (by groups showing the trend over an 18-month period)
For government and nonprofit agencies these measures would also include:
● Availability of the major services we offered e.g., average waiting time for service
● On-time implementation of infrastructure projects
● Membership numbers (for professional organizations)
Separating KRIs from other measures has a profound impact on reporting, resulting in a separation of performance measures into those impacting governance and those impacting management. Accordingly, an organization should have a governance report (ideally in a dashboard format), consisting of up to 10 KRIs for the board, and a series of management reports reporting progress in various intervals during the month depending on the significance of the measure.
Result Indicators
The result indicators (RIs) summarize the activity of more than one team. They are good to review as an overview of how teams are working together. The difference between a key result indicator and a result indicator is simply that the key result indicator is a more overall and more important summary of activities that have taken place.
When you look at a financial measure you will note that you have put a value to various activities that have taken place. In other words, financial indicators are a result of activities. I thus believe all financial performance measures are RIs. Daily or weekly sales analysis is a very useful summary, but it is a result of the effort of a number of teams: from the sales team to the teams involved in manufacture, quality assurance, and dispatch. Financial indicators are useful but mask the real drivers of the performance. To fully understand what to increase or decrease, we need to look at the activities that created the financial indicator.
Result indicators look at activity over a wider time horizon. They not only measure quarterly and monthly results but also weekly, daily activities and future planned events (e.g., sales made yesterday, number of planned initiatives to be implemented next month to improve the timeliness of planes).
For the private sector, result indicators that lie beneath KRIs could include:
● Sales made yesterday
● Number of initiatives implemented from the recent customer-satisfaction survey
● Number of initiatives implemented from the staff survey
● Number of employees' suggestions implemented in the past 30 days
● In-house courses scheduled to be held within three weeks where attendee numbers are below target
● Number of managers who have not attended leadership training (reported quarterly, by manager level)
● Number of staff trained to use specified systems (key systems only)
For government and nonprofit agencies, result indicators would also include:
● Weekly hospital bed utilization
● Percent coverage of [Enterprise Name]'s supported services
● Number of people on treatment/tested for [Disease Name 1], [Disease Name 2], and for [Disease Name 3]
● Grants achieving their public health targets as per grant agreements
● Percentage of investments covering low income, high disease-burdened countries
Performance Indicators
Performance indicators (PIs) are those indicators that are nonfinancial (otherwise they would be result indicators) that can be traced back to a team. The difference between performance indicators and KPIs is that the latter are deemed fundamental to the organization's wellbeing. Performance indicators, although important, are thus not crucial to the business. The performance indicators help teams to align themselves with their organization's strategy. Performance indicators complement the KPIs; they are shown on the organization, division, department, and team scorecards.
For the private sector, performance indicators that lie beneath KRIs could include:
● Abandonment rate at call center – caller gives up waiting
● Late deliveries to customers
● Planned abandonments of reports, meetings, processes that are no longer functioning
● Number of innovations implemented by each team / division
● Sales calls organized for the next week, two weeks, and so forth
● Number of training hours booked for next month, months two and three, and months four to six – in both external and internal courses
For government and nonprofit agencies, Performance Indicators would also include:
● Number of media coverage events planned for next month, months two to three, and months four to six
● Date of next customer focus group
● Date of next research project into customer needs and ideas
Key Performance Indicators
Key performance indicators (KPIs) are those indicators that focus on the aspects of organizational performance that are the most critical for the current and future success of the organization. KPIs are rarely new to the organization. Either they have not been recognized or they were gathering dust somewhere unknown to the current management team. KPIs can be illustrated by two examples.
Example: An Airline KPI
My favorite KPI story is about a Senior British Airways Official who set about turning British Airways (BA) around in the 1980s by reportedly concentrating on one KPI.
The senior BA official employed some consultants to investigate and report on the key measures he should concentrate on to turn around the ailing airline. They came back and told the senior BA official that he needed to focus on one critical success factor (CSF), the timely arrival and departure of airplanes. The consultants must have gone through a sifting process sorting out the success factors which were critical from those that were less important. Ascertaining the five to eight CSFs is a vital step in any KPI exercise, and one seldom performed. In Exhibit 1.1 the CSFs are shown as the larger circles in the diagram.
Exhibit 1.1 The Importance of Knowing Your Critical Success Factors
The senior BA official was, however, not impressed as everybody in the industry knows the importance of timely planes. However, the consultants then pointed out that this is where the KPIs lay and they proposed that he focus on a late plane KPI.
He was notified, wherever he was in the world, if a BA plane was delayed over a certain time. The BA airport manager at the relevant airport knew that if a plane was delayed beyond a certain “threshold,” they would receive a personal call from the senior BA official (let's call him Sam). I imagine the conversation going like this:
“Pat, it's Sam on the phone. I am ringing up about BA135 that left Kennedy Airport over two and a quarter hours late, what happened?”
Pat replies, “The system will tell you that the plane was late leaving Hawaii. In fact it was one and three quarters hours late and everything was in order at our end except we lost an elderly passenger in duty-free shopping. We had to offload their bags and, as you can see, we did it in record time, only half