kpi for the malaysian government

Arriffin KPI management 1

Introducing the KPIs

Hj Arriffin Mansor

Contents of this talk


1. What is KPI2. Key Result Areas or critical success

factors3. How to set performance targets4. Bench markings to the best5. Performance measuring system.6. How could KPI improve performance;7. Conduct Gap Analysis8. Application of KPI system9. Pitfalls in KPI implementation;

Contents - continue

9. Performance improvement framework10.Programs / initiatives11.Performance Framework12.Improvement cycle13.Business Strategies in metrics14.Departmental key performance indicators15.Input output performance analysis16.Performance management dashboards17.Action plan

What is Diagnosis?What is Diagnosis?

• Diagnosis is the process of understanding how the

organization is currently functioning, and it provides

information necessary to design change interventions.

• It is also a collaborative process between organization

members and the OD (organization development)

consultant to collect pertinent information, analyze it, and

draw conclusions for action planning and intervention.

ManagerManager

Before TrainingBefore Training

• Build transfer of training into supervisory

performance standards

• Collect baseline performance data

• Involve supervisors and trainees in needs

analysis process

• Involve trainees in program planning

• Brief trainees on the importance of the training

(course objective, content, process, and

application on the job)

• Review instructional content and materials

• Plan to participate in training sessions

• Encourage trainees attendance at all sessions

TrainerTrainer


• Align the training plan with the organization's

strategic plan

• Systematically design instruction

• Provide proactive opportunities

• Design a peer coaching component for the

program and its follow-up activities

TraineeTrainee


• Provide input into program planning

• Actively explore training options

• Participate in advance activities

ManagerManager

During TrainingDuring Training

• Prevent interruptions

• Transfer work assignment to others

• Monitor attendance and attention to training

• Recognize trainee participation

• Participate in transfer action planning

• Review information on employee in training

• Plan assessment of transfer of new skills to the

job

TrainerTrainer


• Develop application-oriented objectives

• Answer the “WIIFM” question

• Manage the unlearning process

• Provide realistic work-related tasks

• Give individualized feedback

• Provide job performance aid

TraineeTrainee


• Maintain an ideas and application notebook

• Participate actively

• Form support groups

• Plan for applications

• Create behavioral contracts

ManagerManager

After TrainingAfter Training

• Plan trainees’ reentry

• Provide opportunities to practice new skills

• Have trainees participate in transfer-related

decisions

• Reduce job pressures initially

• Give positive reinforcement

• Schedule trainee briefings for co-workers

• Set mutual expectations for improvement

• Arrange proactive (refresher) sessions

• Provide and support the use of job aids

TrainerTrainer


• Provide follow-up support

• Conduct evaluation surveys and provide

feedback

• Develop and administer recognition system

• Provide refresher/problem-solving sessions

Trainee Trainee


• Practice self-management

• Review training content and learned skills

• Develop a mentoring relationship

• Maintain contact with training ‘buddies’

What is KPI?Stands for Key Performance Indicator


Is a measure of efficiency or effectiveness

Efficiency is a ratio of output divided by input which are generally financial in nature

However there are also non-financial KPIs

Key Performance Indicators

• KPI was introduced by Peter Drucker when he envisaged “management by objectives” a situation where defining a clear objective is paramount in effective management.



What is a KPI system?

• A framework consisting of processes, measures, and targets that are used to communicate, monitor and manage performance as well as align resources to achieve the objectives of the organisation "

diagnosisE

valuation

Change

Strategy

MONITORING BOARD

ACTION PLANS© Arriffin Mansor 2010

19

STRATEGIC MAPPINGS

PERFORMANCE FRAMEWORK

Key Result Areas

Key Performance Indicators

Performance Targets / Standards and

Benchmarkings

Goal setting and Objectives

DiagnoseStrategise

ChangeEvaluate


An umbrella term used to describe the methodologies, metrics,

processes and systems used to monitor and manage the business

performance of an enterprise.*

Definition of performance management


Another definition of PMS

• It is a systematic, integrated management approach that links enterprise strategy to core processes and activities. By providing planning, budgeting, analysis and reporting capabilities, PMS allows the business to be "run by the numbers" and measurement to drive management decisions.


Objective of PMS

• The objectives of an effective performance management system are to realize improved performance -- increased profitability, growth, competitiveness, quality and customer satisfaction, to name a few.


Components of PMSAt minimum, the critical components of PMS include the following: 1. A set of well-defined, measurable, and published corporate

performance objectives that act as the focal point for developing performance measures in functional areas within the company.

2. A set of standard metrics that are used to define and describe the relative contribution or influence that business functions within the organization have on the performance objectives.

3. The first two components provide a common framework for measurement, collaboration and cross- functional understanding of the effect of each area's performance on the overall company objectives, as well as the influence each organization has on the performance of other organizations within the enterprise.

4. The ability to predict outcomes based on the common framework for understanding and collectively managing performance -- from high-level objectives to operational activities.


Tuesday May 17, 2005Nor Mohamed wants GLCs to start implementing growth strategiesSECOND Finance Minister Tan Sri Nor Mohamed Yakcop wants government-linked companies (GLCs) to start implementing growth strategies this year, saying that this is “the year of implementation for the GLCs”.

The Star


1. Targets have been established for improving current levels of performance.

2. Targets are achievable, but they may require changes to existing processes.

3. Targets are quantifiable so that the target communicates if the expected performance was met.

4. Longterm Targets (3 to 5 years) stretch the organization towards its strategic goals.

5. Longterm Targets are established first before short term targets.

6. Financial related targets are established first before non financial targets.

Establishing goals – (1)


Establish Goals and objectives

Criteria MenuCriteria for

Defining GoalsDefine Goals

Marketplace

Industry Trends

Technology

Competition

Past Performance

___________

___________

___________

___________

EXAMPLE ->Past Performance

We will increase revenues by 40% over the next three years


SMART(ER) Objectives

• Specific: clear, unambiguous, straightfordward, understandable

• Measurable: can be related to quantified or qualitative performance measures

• Achievable: Objective should be realistic and within known resources

• Relevant: Linked to operational/service plan• Timebound: Building in target date & review dates• Extending Capabilities: Stretching team performance • Recognition: Acknowledgement of team achievement,

reflection, learning


The Challenge…

Turning

Data

Into

Actionable

Information

Improving Performance Management (PM)


Strategic Focused Management Process

Strategy

Balanced Scorecard

Align organization to strategy

Translate strategy into operating terms

Mobilize change starting at the top

Make strategy a continuous process

Make strategy everyone's job

PMS

Key result areas

• Drucker also introduced the concept of key result areas where minimum effort is directed and focus which would generate maximum impact to the objectives.

• KRA has a strong causal relationship with the objectives.

• Other ways of identifying KRA is sensitivity analysis, pareto and root cause analysis



What is a Key Result Areas? – (2)

A key area where satisfactory performance is required for the organization to achieve its goals

A means of identifying the tasks and requirements needed for success

At the lowest level, KRAs become concrete requirements

A means to prioritize requirements


Michael Porter’sBusiness-Level Strategy

DifferentiationDifferentiationCostCostLeadershipLeadership

FocusFocus


OrganizationalOrganizationalObjectivesObjectives

DivisionalDivisionalObjectivesObjectives

DepartmentalDepartmentalObjectivesObjectives

IndividualIndividualObjectivesObjectives

PMS ensures that performance is measured at all levels?


More DifficultGoals LeadTo Higher

Performance

Does PMSWork?

Specific GoalsLead to

Better Results

Support fromTop

ManagementIs Critical

ParticipationIs Key

Measuring Performance

Input output ratio analysis


Performance Analysis

• Take input output data of before and after performance.

• Using the ratio O/I calculate targeted KPI and compare against actual KPI.

• Eliminate the impact of extra input.

• Calculate the pure performance output as a result of efficiency or competency.


Measures


Measuring overall MARKETING DEPARTMENT

Return on Sales Sales Turnover Return on assets

Standard Standard Standard Assets

Sales Assets Performed Performed Performed

Profits Sales Profits

Efficiency indicator


PROFIT MARGIN

10%

ORIGINAL KPI LINE p

SALES 12%

IMPROVED KPI LINE

10 Input Change

4

12000 14400 16800Profit RM

Efficiencyimpact

VolumeImpact

TOTAL IMPROVEMENT = Efficiency + volume improvement

4800 = 2400 24004800 = 16800 12000

© Arriffin Mansor

Types of KPIs

• Lead and lag

• Input output process and outcomes

• Drivers and enablers



Cycle Times CustomerSatisfaction

• Customer orderfulfillment

• Product assemblycycle time

ROA

EVA

EPS

Drivers Moderators Outcomes

(lead indicators) (lag indicators)

Balanced ScorecardChain of Causality of Performance Measures

Quality• Defect rate• Scrap rate

Manufacturing Unit Costs


Service to the Customer

Internal Business Process Measures (Source: Kaplan & Norton, 1996)

Model of Internal Business Process Logistics

Customer Need Identified

Innovation Process

Operations Process

Post-Sale Service Process

Customer Need Satisfied

Identify Market

Create Product

Build Product

Deliver Product

Relevant Metrics:

•Development Cycle Time

•Quality Defects

•MCE

•Delivery Cycle Time

•Service Satisfaction


Corporate Goals & key variables

Return on Equity

•Pricing•Costs•Expenses•Product Mix

Profit Margin Return on

Assets

Asset Turnover

•Inventory & Receivable Management

•Fixed Asset Management

(leverage)

20%10%

5%

2.0


Profit/Capital Employed

Profit/ Revenue from Sales

Revenue from Sales/ Capital Employed

Revenue from Sales/ Total Cost

Labor Cost/ Capital Employed

Labor Cost/ Total Cost

Performance Network


What is so special about the PMS?

What so special about PMS

• It is personal yet organisational

• Performance goal is objective yet collective

• Leadership, teamwork and synergy

• Learning and coaching take place at all times

• Continous improvement through innovation and best practises



CUSTOMER

INTERNAL PROCESSES

GROWING BIGGER & STRONGER /

ACHIEVE GOP

EMPLOYEE & RELATIONSHIP FINANCIAL

Balanced Scorecard PerspectivesBalanced Scorecard Perspectives

New Focus:Balanced measurement of 4 equally important criterias or dimensions


• Improve your organisation / structure• Improve communication (Internal / External)• Link strategy towards operation and towards

measured performance• Focus on results• Strategies are integrated into total management• New approach to measure performance• Diverse / complete measurement with benefits for

all stake holders• Use the PMS as a team-building tool

THE THE benefitbenefits of PMSs of PMS??


1. Focus on traditional financial accounting measures such as ROA, ROE, EPS gives misleading signals to executives with regards to quality and innovation. It is important to look at the means used to achieve outcomes such as ROA, not just focus on the outcomes themselves.

Reasons for PMS


2. Executive performance needs to be judged on success at meeting a mix of both financial and non-financial measures to effectively operate a business.

Reasons for PMS

3. Some non-financial measures are drivers of financial outcome measures which give managers more control to take corrective actions quickly.

(Example: controls in jet cockpit for pilot)


Reasons for PMS

4. Too many measures, such as hundreds of possible cost accounting index measures, can confuse and distract an executive from focusing on important strategic priorities. The balanced scorecard disciplines an executive to focus on several important measures that drive the strategy.


Key Result Areas

1. There are no more than five strategic themes.

2. Strategic themes are realistic and achievable within the organization

3. Themes support and connect with strategic goals.

4. Themes convey a positive impact upon the organization.

5. Themes place focus and direction on what is important.

6. Each theme is distinct and different.

7. Themes are strategic in scope and not tactical day to day.

8. Themes are consistent with the mission and vision of the organization.

9. Themes have an impact on the financial objectives of the organization.


Key Result Areas Guidelines

Those 4 to 6 major areas wherein performance is essential during the coming year.

Include both financial and non-financial areas.

Will not cover the entire organization—will identify the critical few areas where priority efforts should be directed.

Most will require cross-functional effort.

Each will be limited, generally, to 2 or 3 words and will not be measurable as stated, but willcontain factors that could be measurable.


4 key result areas

Financial• ROI• EVA• Revenue• Earnings• Capital• Cash Flow

Customer ->• Quality• Service• Pricing• Time• Image• Relations


Key Result Areas

• Internal Processes ->• Production• Delivery• Marketing• Operations• Quality Control• Service Dept• R & D••

Learning ->

LEARNING

Employee

HR Capital

Knowledge

Technology

Best Practices

Intangibles


The Benefits of KPIs1. More clearly defined objectives

2. Better quality of services rendered3. Objective evaluation of performance.

4. Strategies clearly communicated to all levels within the organisation.

5. Performance improvement strategies identified.

Some example of KPIs

Under the heading of the 4 perspectives



KPIs in a typical private firms

Customer Perspective: KPI or measures include:

1. % of revenue from new customers

2. Customer retention rate

3. Market share

Financial Perspective: KPI or measures include:

1. Profit revenue

2. Revenue total cost

3. ROI and/or ROA


Internal Business Perspective: KPI or measures include:

1. Inventory turnover

2. On-time delivery

3. Production yield

Learning and Innovation Perspective: KPI or measures include:

1. % of staffs who have not been trained for the past 12 months

2. % of revenue from new products

3. Product mix

Relating to the Balanced Scorecard (typical private firms)


Leading

Definition

Lagging

Input

Output

Outcome

Objective / Quantitative

Example

Intermediate outcomes that predicts or drive bottom-line performance results

Measure Type

Bottom-line performance results resulting from actions taken

Amount of Investments, assets, equipment, labor hours, or budget dollars used

Units of a product or service rendered - a measure of yield

Resulting effect (benefit) of the use or application of an output

Empirical indicators of performance

Subjective / Qualitative

Perceptions and evaluations of major customers and stakeholders

Employee turnover rate

Employee satisfaction rating

Number of Value Meal orders fulfilled

Customer satisfaction rating

Wait time

Customer complaints received as a % of total customers served

Number of cashiers

Types of Measurements or KPIsTypes of Measurements or KPIs


Program outcomes related to factor(s)

- HOW - WHOWHAT and WHY

Define the elements of the program or project in a table.

External Influences:

Resources/Inputs Activities Outputs Customers Short-term Intermediate Long-term Reached (Changes in Attitude) (Changes in Behavior) (Changes in Condition)

Outcomes

66

A. ORGANIZATIONAL LEVEL

B. GROUP LEVEL

C. INDIVIDUAL LEVEL

- General Environment- Industry Structure

Inputs Design Components

Organization Effectiveness

Outputs

Strategy

Structure Culture

Human Resources

Technology

- Organization Design


Team Effectivenesse.g., quality of work life, performance

OutputsGoal Clarity

Task Structure

Group Functioning

Group Composition

Group Norms

- Organization Design- Group Design- Personal Characteristics


Individual Effectivenesse.g., job satisfaction, personal development

Outputs

Skill Variety

Task Identity Autonomy

Task Significance

Feedback about Results

Comprehensive Model for Diagnosing OrganizationComprehensive Model for Diagnosing Organization

Types of InterventionTypes of Intervention

Human Process

Intervention

Types of Types of

InterventionIntervention

Structural

Intervention

Human Resource

Management Intervention

Strategic

Intervention

Intervention

Characteristics:

Goal SpecifityThis involves the extent to which intervention

goals are specific rather than broad.

ProgrammabilityThis involves the degree to which the

changes can be programmed or the extent to

which the different intervention characteristics

can be specified early in advance to enable

socialization, commitment, and reward

allocation.

Intervention

Characteristics:

Level of Change Target

This concerns the extent to which the change

target is the total organization, rather than a

department or small work group.

Internal Support

This refers to the degree to which there is an

internal support system to guide the change

process.

Intervention

Characteristics:

SponsorshipThis concerns the presence of a powerful

sponsor who can initiate, allocate, and

legitimize resources for the intervention.

The Strategic Map

Linking the 4 perspectives



Measurement is the language that gives clarity to vague concepts.

Measurement is used to communicate, not to control.

Strategy can be described as a series of cause and effect relationships

"If we succeed, how will we look to our shareholders?”

The Strategy

Financial Perspective

"To achieve my vision, how must I look to my

customers?”

Customer Perspective

"To satisfy my customers, at which processes must

I excel?”

Internal Perspective

"To achieve my vision, how must my organization

learn and improve?”

Organization Learning

TRANSLATE THE STRATEGY TO

OPERATIONAL TERMS


Basic Scorecard Terminology(Southwest Airlines Example)

Objectives

• Fast ground turnaround

Objectives:What the

strategy is trying to achieve

Targets

• 30 Minutes• 90%

Targets:The level of performance

or rate of improvement

needed

• Cycle time optimization

Initiatives:Key action programs

required to achieve targets

InitiativesMeasures

• On Ground Time• On-Time

Departure

Measures:How success

or failure (performance)

against objectives is monitored

Strategic Theme: Operating Efficiency

Profits and RONAFinancial

Learning

Ground crew alignment

Lowest prices

Fewer planes

Customer

Internal

Fast ground turnaround

Strategy Map

On-time Service

Attract & Retain More Customers

Grow Revenues


Inte

rna

l Pro

cess

Sta

keh

old

er

Le

arn

ing

& G

row

th

Reduce Re-Activities thru ABC/M

Establish Web Based Self Services

Knowledge Management

Human Capital

Improved Returns on Investments

More rapid and accessible services

Leadership Development

Inve

stm

en

tsStrategy Map: Capture a Cause Effect

Relationship from the Bottom Up

IT InfrastructureFacilities and Fixed Assets

Economic Model Process

Expand Global Facility Reach

Pitfall in implementing KPIs

Some of them are ......


Some pitfalls in installing KPIs

• Goals and Objectives not clearly defined

• Wrong Key Result Areas identified to achieve the goals set.

• KPIs used are not suitable for proper performance evaluation

• Performance targets are not achieveable and not integrated with that of the organisation.



Organizational benefits of performance management

• Common approach to setting goals and reviewing performance & development

• Aligning individual plans with organizational goals

• Ongoing dialogue between employees and supervisors on performance & development

• Links to corporate learning & development, career & succession planning, rewards & recognition


Integrated performance management framework - elements & linkages

Start of yearIndividualPerformance Management

Ongoing

Plan• Goal Setting

Focus• Progress and

realignment

Review• Results

• Feedback to develop new

planEnd of year

•Career Plan •High Potential•Succession Plan•Learning Needs & Courses

•Recognitionmechanisms (e.g.informal and

formal rewards and recognition,

development, base pay, pay for performance

•Recognitionmechanisms (e.g.informal and

formal rewards and recognition,

development, base pay, pay for performance

Gov’t Strategic Plan, Ministry Plan, Branch Plan

Gov’t Strategic Plan, Ministry Plan, Branch Plan

Corporate Opportunities

CompetenciesCompetencies

ReviewOutcomes


PMS in summary

• Define performance objectives

• Establish Key Result Areas

• Key Performance Indicators

• Performance Targets and Standards

• Performance Record Keeping

• Variance or gap analysis

• Strategic Interventions

400 INTERNAL PROCESSINPUT PROCESS OUTPUT OUTCOME

Material variances

Labour

Overhead Efficiency ratios

Quantity produced

Average cost per transaction

Research dev expense

Productivity ratios

Value produced

ROI

Inventory turnover

Average lead time

Average Prodn cost

Waste Reduction84

900 HRM INPUT PROCESS OUTPUT OUTCOME

Incentives variances Turnover ratio

Hours Efficiency ratios

No produced

Profit per employee

Training Productivity ratios

Value produced

ROI

Salary Average lead time

Turnover Revenue per employee

Skill competency

Waste Reduction Employee productivity

Value added per employee

85

500 MARKETINGINPUT PROCESS OUTPUT OUTCOME

Material Response rate No of customers

Labour Marketing costs % Sales volume

Overhead Efficiency ratios Customers Profitability


Productivity ratios

Product profitability

ROA marketing


Customer acquisition

Return on Sales

Inventory turnover Average lead time Customer retention

Price rel to comp Waste Reduction Revenue growth

Delivery Channel

86

400 INTERNAL PROCESSINPUT PROCESS OUTPUT OUTCOME

Material variances

Labour

Overhead Efficiency ratios

Quantity produced



Productivity ratios

Value produced

ROI

Inventory turnover

Average lead time

Average Prodn cost

Waste Reduction87

Arriffin KPI management89

Business objectives

Key ResultAreas

Critical SuccessFactors

PerformanceIndicators

Performancestandards

Strategicinitiatives

PerformanceActuals

Change

PERFORMANCE CYCLE

Training Need Analysis (TNA)

TNA is a tool toidentify the gapExisting

• Skills• Knowledge• Attitudes

Required• Skills• Knowledge• Attitudes

90

Cost Efficiency

Long-term Shareholder Value

Revenue Growth

Price Availability BrandServiceQuality

Operations Management

Processes

Human Capital

CustomerManagement

Processes

Innovation Processes

Regulatory and Social Processes

Organization Capital Information Capital

Strategy Map FrameworkStrategy Map Framework

Financial

Customer

Internal Process

Learning & Growth

Long-term Shareholder Value

Revenue Growth

Improve Cost Structure

Increase Asset Utilization

Cost Efficiency

Strategic Objectives in FinancialStrategic Objectives in Financial

Expand Revenue

Opportunities

Enhance Customer Value

Price Availability BrandServiceQuality

Customer AcquisitionCustomer Acquisition

Customer SatisfactionCustomer Satisfaction

Customer Retention Customer Retention Customer ProfitabilityCustomer Profitability

Market ShareMarket Share

Strategic Objectives in CustomerStrategic Objectives in Customer

Operations Management

Processes

CustomerManagement

Processes

Innovation Processes

Regulatory and Social Processes

Processes that produce and

deliver products and services

Processes that enhance customer

value

Processes that create new

products and services

Processes that improve

communities and the environment

• Supply

• Production

• Distribution

• Selection

• Acquisition

• Retention

• Growth

• New Ideas

• R&D Portfolio

• Design/

Develop

• Launch

• Environment

• Safety &

Health

• Employment

• Community

Strategic Objectives in Internal ProcessStrategic Objectives in Internal Process

Human Capital Organization Capital

Information Capital

• Skills• Knowledge• Attitude

• Systems• Database• Networks

• Culture• Leadership• Organization

Development

Strategic Objectives in Strategic Objectives in

Learning & GrowthLearning & Growth

Improve Cost Efficiency

Enhance Long-term Shareholder Value

Increase Revenue Growth

Enhance Brand Image

Build High Performance Products

Achieve Operational Excellence

Develop Strategic Competencies

Drive Demand through Customer

Relation Management

Manage Dramatic Growth through

Innovation

Implement GoodEnvironmental

Policy

Build Learning Culture

Expand Capabilities with Technology

Strategy Map TemplateStrategy Map Template

Financial

Customer

Internal Process

Learning & Growth

Expand Market Share

Action Plan Format

Objective:

Action Steps

Accountability Schedule

Resources

Feedback Mechanis

mPrimary Others Start

Complete

Money

Time

THANK YOU FOR YOUR ATTENTIONQuestions please


kpi for the malaysian government

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