Key Performance IndicatorsDeveloping, Implementing, and Using Winning KPIs
Streamline KPIs to craft a simpler, more effective system of performance measurement Key Performance Indicators provides an in-depth look at how KPIs can be most effectively used to assess and drive organizational performance. Now in its third edition, this bestselling guide provides a model for simplifying KPIs and avoiding the pitfalls ready to trap the unprepared organization. New information includes guidance toward defining critical success factors, project leader essentials, new tools including worksheets and questionnaires, and real-world case studies that illustrate the practical application of the strategies presented. The book includes a variety of templates, checklists, and performance measures to help streamline processes, and is fully supported by the author’s website to provide even more in-depth information. Key Performance Indicators are a set of measures that focus on the factors most critical to an organization’s success. Most companies have too many, rendering the strategy ineffective due to overwhelming complexity. Key Performance Indicators guides readers toward simplification, paring down to the most fundamental issues to better define and measure progress toward goals. Readers will learn to: separate out performance measures between those that can be tied to a team and result in a follow-up phone call (performance measures) and those that are a summation of a number of teams working together (result indicators) look for and eradicate those measures that have a damaging unintended consequence, a major darkside Sell a KPI project to the Board, the CEO, and the senior management team using best practice leading change techniques Develop and use KPIs effectively with a simple five stage model Ascertain essential performance measures, and develop a reporting strategy Learn the things that a KPI project leader needs to know A KPI project is a chance at a legacy – the project leader, facilitator, or coordinator savvy enough to craft a winning strategy can affect the organization for years to come. KPI projects entail some risk, but this book works to minimize that risk by arming stakeholders with the tools and information they need up front. Key Performance Indicators helps leaders shape a performance measurement initiative that works.
About the Author xiii Preface xv Acknowledgments xxxi PART I: Setting the Scene 1 CHAPTER 1 The Great KPI Misunderstanding 3 Key Result Indicators 4 Result Indicators 5 Performance Indicators 7 Key Performance Indicators 7 Seven Characteristics of KPIs 11 Difference between KRIs and KPIs and RIs and PIs 14 Lead and Lag Confusion 15 Number of Measures Required—The 10/80/10 Rule 19 Importance of Timely Measurement 21 Where Are You in Your Journey with Performance Measures? 22 Notes 23 CHAPTER 2 The Myths of Performance Measurement 25 Myth #1: Most Measures Lead to Better Performance 26 Myth #2: All Measures Can Work Successfully in Any Organization, At Any Time 26 Myth #3: All Performance Measures Are KPIs 27 Myth #4: By Tying KPIs to Remuneration You Will Increase Performance 28 Myth #5: We Can Set Relevant Year-End Targets 28 Myth #6: Measuring Performance Is Relatively Simple and the Appropriate Measures Are Obvious 30 Myth #7: KPIs Are Financial and Nonfinancial Indicators 31 Myth #8: You Can Delegate a Performance Management Project to a Consulting Firm 31 The Myths Around the Balanced Scorecard 32 Notes 42 CHAPTER 3 Unintended Consequence: The Dark Side of Measures 43 Example: City Train Service 44 Example: Accident and Emergency Department 44 Examples from Dean Spitzer’s Book 45 Performance-Related Pay 46 Dysfunctional Performance Measures Checklist 47 Notes 48 CHAPTER 4 Revitalizing Performance 49 Five Foundation Stones 51 The Many Facets of Performance Management 73 Notes 85 CHAPTER 5 Strategy and Its Relevance to Performance Measures 87 Articulate Your Organization’s Mission, Vision, Values, and Lean Management Principles 89 Create a Strategy That Is Understood by Staff 90 Ensure That Your Strategy Is Balanced 92 Monitor Implementation of Your Strategy 94 Creating the Future 96 Notes 97 PART II: Winning KPI Methodology 99 CHAPTER 6 Background to the Winning KPI Methodology and Its Migration 101 The Original 12-Step Process 101 The New Six-Stage Process 103 Winning KPI Methodology and Its Migration 103 An Overview of the Six Stages 105 CHAPTER 7 Foundation Stones for Implementing Key Performance Indicators 107 “Partnership with the Staff, Unions, and Third Parties” Foundation Stone 109 “Transfer of Power to the Front Line” Foundation Stone 110 “Measure and Report Only What Matters” Foundation Stone 111 “Source KPIs from the Critical Success Factors” Foundation Stone 113 “Abandon Processes That Do Not Deliver” Foundation Stone 114 “Appointment of a Home-Grown Chief Measurement Officer” Foundation Stone 116 “Organization-Wide Understanding of the Winning KPIs Definition” Foundation Stone 118 Notes 119 CHAPTER 8 Getting the CEO and Senior Management Committed to the Change (Stage 1) 121 Obtaining Senior Management Team Commitment 122 Agree on Timing, Resources, and Approach 126 Benefits of This Stage 131 Templates and Checklists 132 Notes 132 CHAPTER 9 Up-Skill In-House Resources to Manage the KPI Project (Stage 2) 133 Establish a Winning KPI Team Working Full Time on the Project 133 Establish a Just-Do-It Culture and Process 139 Benefits of This Stage 144 Templates and Checklists 144 Notes 144 CHAPTER 10 Leading and Selling the Change (Stage 3) 145 Leading Change by John Kotter 146 Learn to Sell by Appreciating the Emotional Drivers of the Buyer 147 Sales Pitches You Will Need to Make to Get the Go-Ahead 149 Selling the Winning KPIs to the Organization’s Staff 156 Benefits of This Stage 160 Templates and Checklists 160 Notes 160 CHAPTER 11 Finding Your Organization’s Operational Critical Success Factors (Stage 4) 161 Operational Critical Success Factors versus External Outcomes 162 Operational Critical Success Factors—The Missing Link 163 Rules For Ascertaining the Operational Critical Success Factors 165 Characteristics of Critical Success Factors 170 Four Tasks for Identifying Operational Critical Success Factors 170 Alternative Methodologies 185 Benefits of This Stage 187 Templates and Checklists 188 Notes 188 CHAPTER 12 Determining Measures That Will Work in Your Organization (Stage 5) 189 How to Derive Measures: An Overview 190 Ascertain the Team Performance Measures 191 Recording Performance Measures in a Database 199 Sorting the Wheat from the Chaff 202 Find the KRIs That Need to Be Reported to the Board 203 Find the Winning KPIs 205 Measures Gallery 206 Benefits of This Stage 208 Templates and Checklists 208 Notes 208 CHAPTER 13 Get the Measures to Drive Performance (Stage 6) 209 Develop the Reporting Framework at All Levels 209 Facilitate the Use of Winning KPIs 213 Refine KPIs to Maintain Their Relevance 217 Benefits of This Stage 218 Templates and Checklists 219 Notes 219 CHAPTER 14 Reporting Performance Measures 221 The Work of Stephen Few in Data Visualization 222 Reporting the KPIs to Management and Staff 223 Reporting Performance Measures to Management 228 Reporting Performance Measures to Staff 231 Reporting Performance Measures to the Board 231 Reporting Team Performance Measures 241 How the Reporting of Performance Measures Fits Together 243 Designing Reports Around Current Technology 244 Notes 245 PART III: Chief Measurement Officer’s Toolkit 247 CHAPTER 15 Resources for the Chief Measurement Officer 249 The CMO Needs a Cluster of Mentors 249 Guidelines for the External KPI Facilitator 250 Remember the Fundamentals 252 Resources 253 Running Workshops 256 Implementation Lessons 257 Templates and Checklists 268 Notes 269 CHAPTER 16 Case Studies on the Critical Success Factor Workshops 271 Private Sector Case Study # 1: An Asian Conglomerate 271 Private Sector Case Study #2: Medical Company 274 Private Sector Case Study #3: Forestry Company 276 Private Sector Case Study #4: Car Manufacturer 277 Private Sector Case Study #5: Timber Merchant 278 Private Sector Case Study #6: Investment Bank 278 Nonprofit Membership Organization Case Study #1: Golf Club 279 Nonprofit Membership Organization Case Study #2: Surf Life Saving 281 Government Department Case Study #1 284 Government Department Case Study #2 286 Professional Accounting Body Case Study 287 Charity Case Study 287 CHAPTER 17 Common Critical Success Factors and Their Likely Measures 289 CHAPTER 18 Comparison to Other Methodologies 299 Main Differences Between the Balanced-Scorecard and Winning-KPIs Methodologies 299 Stacey Barr’s PuMP 304 Paul Niven’s Balanced Scorecard Work 307 Notes 309 CHAPTER 19 CEO Toolkit 311 Letter to You, the Chief Executive Officer 311 Measurement Leadership Has to Come from the Chief Executive Officer 314 Note 316 APPENDIX A Foundation Stones of Performance-Related Pay Schemes 317 The Billion-Dollar Giveaway 317 The Foundation Stones 318 Notes 333 APPENDIX B Draft Job Description for the Chief Measurement Officer 335 Outline 335 Duties/Responsibilities of the Chief Measurement Officer 336 Skills and Experience 337 APPENDIX C Delivering Bulletproof Presentations 339 APPENDIX D Presentation Templates 347 APPENDIX E Performance Measures Database 349 Index 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DAVID PARMENTER is an international presenter known for his thought-provoking and lively sessions, which have led to substantial change in many organizations. He is a leading expert in the development of winning KPIs, replacing the annual planning process with quarterly rolling planning and lean finance team practices. Parmenter's work on KPIs is recognized internationally as a breakthrough in understanding how to make performance measures work. He has delivered workshops to thousands of attendees in 30 countries around the world. Parmenter has worked for Ernst & Young, BP Oil Ltd, Arthur Andersen, and PricewaterhouseCoopers, and is a fellow of the Institute of Chartered Accountants in England and Wales. He is a regular writer for professional and business journals. He is also the author of Winning CFOs: Implementing and Applying Better Practices, Key Performance Indicators for Government and Non Profit Agencies: Implementing Winning KPIs, and The Leading-Edge Manager's Guide to Success (all from Wiley). He can be contacted via email@example.com. His website, www.davidparmenter.com, contains many white papers, articles, and freeware that will be useful to readers. The reader can access, free of charge, a PDF of the suggested worksheets, checklists, and templates from www.kpi.davidparmenter.com/thirdedition
Most organizations use the wrong measures, most of which are incorrectly termed key performance indicators (KPIs). Measures are destroying value and encouraging inappropriate activities, inhibiting projects, strangling outsourcing arrangements, and limiting the effectiveness of balanced scorecards. Measures should be segregated between those that report on collective efforts (result indicators) and those measures that can be tied to a team that will enhance performance (performance indicators). In Key Performance Indicators, performance measurement expert David Parmenter has developed a clear set of steps that enable leaders to avoid these pitfalls and create KPIs that meaningfully reflect short- and long-term organizational performance. The book includes: The seven characteristics of KPIs The important difference between result and performance indicators A new simplified six-stage process for developing and using KPIs The myths of performance measurement that impede your progress Why KPIs should not be used in performance-related pay The significance of the paradigm thought leaders (e.g., Peter Drucker's abandonment) The importance of understanding the dark side of performance measures How to ascertain performance measures that work A kit to help you find your organization's critical success factors, the source of all meaningful measures The need for an in-house measurement expert How to lead and sell change in measurement practices A web-based 90-page toolkit of worksheets, checklists, and questionnaires so the KPI team can get quick runs on the board Over 200 performance measures
Most measures are wrong and inappropriately labelled and are described so aptly by William Shakespeare's line, "Full of sound and fury signifying nothing." This book helps organizations develop, implement, and use key performance indicators (KPIs)—the performance measures that make a profound difference. PRAISE FOR KEY PERFORMANCE INDICATORS "We have worked with David Parmenter's methodology since 2013. The 'winning KPIs' methodology works extremely well alongside the implementation of 'lean' in our business. I wholeheartedly recommend this book and methodology to those who have been tasked with developing KPIs that can change behaviors and deliver a broad range of improved business results." —LOUISE O'CONNELL, Strategy and Performance Manager, Nelson Management Limited "David's methods for the development and implementation of KPIs is straightforward, clear, and above all else, practical. Anyone interested in implementing KPIs for the first time in his or her organization will find this book an invaluable resource." —SUZANNE TUCKER, CEO, The CFO Edge, Inc. "David's KPI methodology is easy to understand and share, and facilitates the identification and implementation of KPIs in any business. His approach drives improvement in operational performance." —SCOTT HODGE, President and Performance Architect, Associates in Management Excellence "The KPI methodology clicked with me immediately and I used it at my previous employer, Stanley Black & Decker. Once our critical success factors were analyzed, interpreted, and measured, the project took off, leaving a lasting legacy." —ANDREW BRAZIER, Head Coach, Bu$i-Coach Inc.
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