| There is often a lot of confusion around the definition | | | | KPIs |
| and use of the various metrics: KRA's, KRI's, PI's and | | | | KPIs are direct indicators of management decisions at |
| KPIs. In this article I will attempt to clarify the difference | | | | a strategic level; that is they are the most critical |
| between each and how they are applied to | | | | metrics of the company in terms of effecting a major |
| dashboards and scorecards. | | | | improvement in performance. |
| First, let's just revisit the difference between a | | | | KPIs are the result of one action that directly |
| dashboard and a scorecard: | | | | contributes to a strategic objective and are measured |
| The primary difference between the two is that | | | | over very short time periods: hours, days, weeks and |
| dashboards monitor the performance of operational | | | | months. |
| processes [events and transactions] whereas | | | | An effective KPI dashboard may have more |
| scorecards show the progress towards tactical and | | | | measures than a KRI dashboard, but never more than |
| strategic goals. In addition, a scorecard is driven by a | | | | 18-12. The selection of measures will be determined by |
| management methodology, such as balanced | | | | the purpose of the dashboard. For instance, a |
| scorecard. They are a direct indicator of how well the | | | | department dashboard may have only 8 KPI's, where |
| corporate strategy is being executed. | | | | as a department balanced scorecard will generally |
| Quick Metric Definintions | | | | include a mix of PI's and KPI's and may include 18-20 |
| KRI - key result indicators tell what you have done in | | | | measures. Remember that the different between a |
| key result areas [KRA's]. These are broad results | | | | dashboard and a scorecard is that a scorecard has a |
| areas where the overall performance metric, KRI is | | | | methodology attached to it. |
| the result of many actions. | | | | There is no ideal list of KPI's for all companies, or even |
| PI - performance indicators tell you what to do. These | | | | all companies within an industry. The reason for this is |
| are more focused in smaller targeted areas than KRI's, | | | | that two competing companies may have totally |
| but less powerful than KPI's | | | | different strategic imperatives. A strategic imperative is |
| KPI - key performance indicators tell you what to do | | | | that one overriding strategic objective to which all |
| the dramatically increase performance. They are the | | | | other strategic objectives are serving. It is the dominant |
| result of one action, and directly linked to a strategic | | | | focus of the company. |
| objective. | | | | Thus, two manufacturers may have similar strategic |
| KRIs | | | | objectives and PI's, but one manufacturer may be |
| KRIs are indicators of how well the organization is | | | | focusing on expansion to gain a dominant foothold in |
| being governed, and are measured used by the board | | | | an emerging market and see this as the most critical |
| to measure the effectiveness of overall management | | | | goal to sustain its competitive future. The other |
| decisions. For an effective KRI dashboard will have no | | | | manufacturer may be more focused on reducing its |
| more than 10-12 measures. | | | | number of customers and increasing the annual sales |
| KRIs include: | | | | value of each customer. |
| - Financial measures* such as return on capital | | | | However, KPI's do share common characteristics |
| employed, NPBIT, EBIT | | | | including: |
| - Customer measures such as customer satisfaction | | | | |
| and customer profitability | | | | 1. They are forward facing in that they have significant |
| - Internal measures such as employee churn, | | | | impact on fulfilling a strategic objective |
| employee satisfaction | | | | 2. They are linked to responsibilities of teams and |
| These measures are broad, cover long time periods | | | | individuals |
| such as quarters or year. | | | | 3. They generally impact all other performance |
| *Generally, all financial measures are KRI's as they are | | | | measures and more than one BSC perspective |
| historical and are contributed to by a number of | | | | 4. They are non-financial |
| contributing factors. Where a focused financial | | | | 5. They have short measurement cycles and must be |
| measure directly relates to a strategic imperative with | | | | constantly monitored |
| a financial outcome, then in some cases a financial | | | | Thus, these measures have a direct link from the |
| metric may also be a KPI for a defined period. | | | | strategy set by the senior executive team all the way |
| Performance Indicators | | | | down through the organization to individuals. It is |
| These are metrics that represent the performance in | | | | imperative that the importance and impact of these |
| one particular area, and can be both strategic and | | | | measures are well understood by all, and the |
| tactical. They represent a more focused area of | | | | corrective action required if the performance is not |
| performance than a KRI, but may not necessarily be | | | | reaching targets. |
| critical to the overall strategic execution. For instance, | | | | For instance, if meeting manufacturing deadlines is a |
| PI's may include measures such as: | | | | KPI that contributes to the strategic imperative, then if |
| - Profitability of the top 10% of customers | | | | there are indications that deadlines are being missed, |
| - Net profit on a particular product group | | | | immediate action will be taken to bring in more staff, |
| - Percentage increase in sales in a particular region | | | | improve throughput productivity, resolve any supply |
| - Percentage participation of employees in training | | | | issues, and identify and correct any other contributing |
| scheme | | | | factors. |