Chapter 8

Chapter 8 Measures, Metrics, KPIs, and Performance Management
Fundamentals of Business Analytics RN Prasad and Seema Acharya Copyright 2011 Wiley India Pvt. Ltd. All rights reserved.
Learning Objectives and Learning Outcomes

Learning Objectives Learning Outcomes
Measures, Metrics, KPIs and Performance Management

1.
2. 3. 4. 5.
(a) Ability to explain the role of Metrics in the Business/Functions performance management To introduce terminology associated with and decision making measurement (b) Ability to identify Metrics and Indicators in a given Need for a system of measurement business scenario (c) Ability to model a business Characteristics of measures scenario, identify the metrics, indicators and Process used for defining good measures make recommendations to achieve the business goal Relationship of these measures to individuals/ teams/departments and the entire company
Session Plan
Lecture time Q/A
: 90 minutes approx. : 15 minutes
Agenda
Measurement system terminology Salient attributes of a good metric SMART test for ensuring metric relevance to business Supply chain associated with the metric Fact-based decision making and KPIs Few sample KPIs used by Human Resource (HR) division
Mapping metrics to business phases
Measurement System Terminology

Data It is a collection of facts which have similar attributes or characteristics. Phone number is a named collection of, say, mobile phone numbers of your friends. Measure Data with associated unit of measure (UOM) is typically termed as measure. Lab hours per month has a numeric data associated with time duration. Metric It is a system of measures based on standard UOM with a business context. The term business metric also refers to the same. Product defect rate by city is an example of measuring what percentage of goods was returned by customers in different cities. . Indicator It is a business metric used to track business results or success/performance. Call drop frequency for mobile phone users is an indicator of user dissatisfaction. Index It consists of a composite set of indicators used to address the overall health of business operations. Customer satisfaction index measured on a scale of 1 to 5. Fundamentals of Business Analytics RN Prasad and Seema Acharya Copyright 2011 Wiley India Pvt. Ltd. All rights reserved.
Measurement System Terminology

A metric data when properly defined includes four components: Subject This measure is about a customer, a product, a supplier, an employee, etc. Quantum It is the value of the measure, such as cost, frequency, duration, amount, etc. Stratum It is the grouping consideration expressed like By Location, By Quarter, By Customer, etc.
Application Value compared with similar measurements like previous month, forecast, target, etc.
Few Salient Attributes of a Good Metric

Metric Attribute
Name
Remarks
Example
Abbreviation Description
Metric should be assigned a simple, easy- 1. eLearning Training Days to-remember name. Do not include codes, 2. Average Lines of Code long words, and unit of measure. Short form used inside the organization. eTD/ ALOC in above cases. Provide explanation to help users eLearning Days Total number of full-time understand more contexts and comprehend days equivalent spent in training using the metric unambiguously. online course delivery system. Users may log-in any number of times and duration of each session is captured in minutes. The commonly measured base unit needs to In the eLearning example, the unit is be included. Minutes. In the eLearning example as the data storage granularity is Days, the scale is minutes/(60 * 8) assuming 8 hours is a standard training day.
Unit of Measure
(For data capture) Scale Commonly reported granularity of unit of measure. We need to capture the conversion formula. Simple multiples like 1000 (K) or M (Million) are commonly used. Metric Owner Position/department responsible accountable for the metric
and The training support manager in the training department could be an owner.
SMART Test for Ensuring Metric Relevance to Business

Test Focus Metric is clearly defined, articulated, and understood by all stakeholders, and is triggering action. Measurable Someone in the organization must have the ability/instrumentation to accurately, easily and regularly measure the actual value at reasonable cost and technology. Think if a clinical thermometer would cost USD 1000!! Attainable There will be no metric without target. This target may be stretched but must be attainable with the current level of people efforts and processes. Speed by cycle cant be enhanced to 300 kmph no matter whatever be the technology used! ResultThe metric must motivate team members performing the work. In oriented businesses results are crucial. Time-bound All actual values of metrics should be traceable to the date/time when the actual value measurement was taken. The instrument used for measurement also has a key role in sampling, accuracy, speed and correctness that can be verified in other ways.
Test Specific
Supply Chain Associated with Metrics

Component of Measurement Entities to be measured Supply Chain Contribution Includes employee, vendor, product, customer, asset, expense category, sales promotion, service feedback Measurement data, data capture and storage in raw form Reference data, definitions, benchmarks, limits Measures with unit, format, storage structure, archives Business metrics approved, communicated and measured, verified and analyzed with rigor Reports, dashboards, scoreboards, alerts, Flash updates
Instrumentation Raw material Sub-assemblies Product Metrics Delivery
Supply Chain Associated with Metrics

Component of Measurement Business Activity Areas (Decisions/Actions) Business Application Business Value Supply Chain Contribution Plan review, tracking project progress, sales campaign analysis, profit forecast Budget control, quality improvement, innovation projects Business results exceeding plan meeting and
Fact Based Decision Making and KPIs

KPIs are objective, measurable attributes of business performance, which assist in informed decision-making. KPIs should be:
Relevance and functionality The KPIs chosen should be directly related to business results that the company is trying to produce in the specific business function. Like, your body temperature measurement can only indicate whether you have fever or not, but can say nothing about your blood pressure! Understandable Chosen KPIs must be defined unambiguously. A KPI needs to be understood in one and only one way by all stakeholders. It must be documented, and its definition must be easily accessible to all users. Reliability and Credibility The value of KPIs needs to be authentic and should be validated as trusted or dependable. Someone is going to base an important decision on the chosen metric. Adequate checks are needed to declare data as trustworthy. This also means that the data must represent the single version of truth. Abuse-proof An abuse-proof measure is unlikely to be used against intended purpose or individual(s) involved in the measurement process.
Few Sample KPIs Used by the Human Resources Division

Average time to recruit. Average open time of job positions. No. of responses to open job positions. No. of interviews to fill up open job positions. No. of offers that were made. No. of responses to the offers made. % of vacancies that were filled within x time. % of new employees that remained after x time. % of new employee satisfaction rate.
Answer a Quick Question
How would you aggregate KPIs for selecting sports teams for tournaments at college, state, regional, national and international levels?
Answer a Quick Question
You are the owner of a retail chain. You wish to enhance the productivity of your stores employees. What metrics will you define to achieve this objective?
Mapping Metrics to Business Phases
Business Analytics RN Prasad and Seema Acharya Copyright 2011 Wiley India Pvt. Ltd. All rights reserved.
Fundamentals of
Summary please
Ask a few participants of the learning program to summarize the lecture.

Chapter 8

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chapter 8

Uploaded by

Copyright:

Available Formats

Chapter 8 Measures, Metrics, KPIs, and Performance Management

Learning Objectives and Learning Outcomes

Measures, Metrics, KPIs and Performance Management

Lecture time Q/A

: 90 minutes approx. : 15 minutes

Mapping metrics to business phases

Measurement System Terminology

Measurement System Terminology

Few Salient Attributes of a Good Metric

SMART Test for Ensuring Metric Relevance to Business

Supply Chain Associated with Metrics

Instrumentation Raw material Sub-assemblies Product Metrics Delivery

Supply Chain Associated with Metrics

Fact Based Decision Making and KPIs

Few Sample KPIs Used by the Human Resources Division

Answer a Quick Question

Answer a Quick Question

Mapping Metrics to Business Phases

Ask a few participants of the learning program to summarize the lecture.

You might also like