Performance Management Blog

Archive for October, 2009

Setting targets in performance measurement: how do numbers work?

Tuesday, October 27th, 2009

Setting, monitoring targets and understanding the implications of their dynamics is not as simple as it might seem. In order to do this properly and with maximum benefits, it is important to make sure of:

Understanding the concept of „target”. Sometimes used interchangeably with terms such as objective or goal, a target represents a desired or minimum level of performance.

Understanding the relevance and scope of targets in the context of performance management. Certain target levels can be used as levers to stimulate improvement, as they lock in commitments to achieve more.
Involving employees. This facilitates their understanding of the process, while giving them a sense of ownership. As a result, targets are less likely of being set subjectively, in terms of what employees think they are likely to achieve (so that they are not penalised for not reaching a target), but set in terms of desirable levels of quality or quantity.
Taking into consideration industry averages, these can help in assessing own performance. Sources such as the ones provided by well recognized research organisations J.D. Power & Associates can be helpful in providing valuable data in this respect.

Setting targets for targets’ sake is counterproductive. Some performance indicators are out of the control of the organization or staff. Others reflect the status, however do not warrant the establishment of a target.

Being linked to objectives and measures, targets should themselves be SMART: Simple, Measurable, Achievable, Realistic and Timely.

Some problems that might appear in the context of target setting and monitoring are the following:

Lack of perseverance in monitoring targets over time; this is the only way to assess their impact on performance improvement. Over time, we have to realize whether we have set the correct targets and their correct interpretation (in terms of „traffic lights”).
Lack of ownership or unreliable data.
Targets working against one another.

Undoubtedly, whereas strategic visions can be difficult to communicate and embrace, breaking down the top goals into smaller concrete targets and creating the needed synergies will make the process of delivering them much easier.

References:

Harvard Business: Tips for settting performance targets

Idea.gov.uk: Target Setting – A Practical Guide

Businesslink.gov.uk: Measure performance and set targets

Tags: Key Performance Indicators, Measures, Metrics
Posted in KPI, Measure, Performance Management, Performance Measurement, Targets | No Comments »

Frequency of KPIs tracking and reporting

Monday, October 26th, 2009

Tracking Key Performance indicators (KPIs) provides relevant feedback for the current state of organizational performance. KPIs also assist in the decision making process regarding actions that need to be taken to improve future performance. Measuring performance is a key organizational process that can be enhanced by making smart decisions about the frequency of measurement. It is highly important to know how often to track and report using KPIs.

The main available options are: Live (Continuously), Daily, Weekly, Monthly, Quarterly, Biannually or Annually.

The standard frequency for monitoring the achievement of organizational objectives should take into consideration aspects such as:

Urgency: Is this a result that needs to be improved in the next six to 12 months? If so, it probably needs to be measured at least monthly.
Time frame of changes: If you were to go make an improvement now, how long would it take before you saw the effect? For example, if you introduce a new procedure in the call center, you expect to see the results right away. Therefore, it would be useful to measure the changes in KPIs related daily/weekly.
Accuracy: Do you need smaller samples or larger ones, and how frequently, to consider them reliable to indicate a trend or change in time? Larger samples, done on a regular basis, can increase the cost, but they offer a higher level of data integrity
Cost/benefits report: Is measuring the performance result more frequently worth the benefit of having more frequent feedback? As costs, consider data gathering costs and time involved, bureaucracy level, management meetings required, etc.

Tags: Key Performance Indicators, Measures, Metrics
Posted in KPI, Measure, Performance Management, Performance Measurement | No Comments »

On performance measurement

Tuesday, October 13th, 2009

measurement

Performance measurement is a sub process of performance management that focuses on the identification, tracking and communication of performance results by the use of performance indicators. It deals with the evaluation of results, while performance management deals with taking action based on the results of the evaluation and ensuring the target results are achieved.

Performance measurement is not an end in itself. It is done because of the information that is collected and used for various purposes, and the benefits that are generated.

Performance measurement is used to:

Evaluate, and determine what works and what doesn’t. This is usually the main reason for measuring performance. Based on the evaluation, management can also decide where to invest the most, and allocate budgets according to the best return on investment.
Control, and verify if the organisation and the employees are doing the right thing right.
Motivate, and provide tangible feedback to employees. By understanding the factors that generate performance, managers can develop and implement motivation methods to sustain it.
Clarify and focus on long term goals and strategic objectives. By comparing the actual performance to the expected one, the organisation can set up objectives and targets to guide it.
Make decision. This is the normal action to be made after performance is measured. Information itself means nothing if it’s not used properly.
Learn, and improve. As performance measurement reveals what goes right and wrong, the organisation can learn and improve. If performance measurement wouldn’t generate any change, it would be just an extra activity.

There is no single performance measure to be used for all these purposes. Thus, managers shouldn’t seek one miraculous performance measure, but develop a set of measures to help them in monitoring the achievement of their objectives. Management should first decide what is to be measured, the purpose to which performance measurement might contribute, and then select the measures with the appropriate characteristics.

Tags: Key Performance Indicators, Measures, Metrics
Posted in KPI, Measure, Performance Management, Performance Measurement | No Comments »

Economic value added or EVA ®

Monday, October 12th, 2009

Economic value added or EVA® is a measure of the true economic profit of a company. Although in a sense it is nothing more than the traditional, commonsense idea of “profit”, it makes a clear separation from dubious accounting adjustments that may occur (remember ENRON, which for a long period of time was reporting profits, while in fact was in the final approach to becoming insolvent).

EVA® is calculated as the difference between the Net Operating Profit After Tax and the opportunity cost of invested Capital. This opportunity cost is determined by the weighted average cost of Debt and Equity Capital (“WACC”) and the amount of Capital employed.

EVA calculation

The term EVA® is a registered trademark by its developer, the consulting firm Stem Stewart & Company, since 1994. Still, another much older term for economic value added, the Residual Cash Flow, has been also used by companies for years. These measures have their foundation in the residual income and internal rate of return, concepts developed in the 1950s and 1960s. Residual income was originally developed and used by General Electric (GE) to measure performance, and was popularized by McKinsey & Company as economic profit (Carton, Hofer, 2006).

Unlike other measures, EVA® can be calculated at divisional level (i.e. Strategic Business Units), can be used for performance evaluation over time, as it is a flow, and it captures the period-by-period value creation or destruction of a given firm or investment and thus makes it easy to audit performance against management projections.

EVA® can also be used for corporate valuation and equity analysis, motivating the managers and setting organizational goals.

Even though it is a much appreciated indicator, it also has some limitations. EVA® overemphasizes the need to generate immediate results and therefore it doesn’t stimulate investments in innovative products or process technologies. Also, when calculated at the divisional level of a company, it does not control for size differences, and a larger plant or division will tend to have a higher value than its smaller counterparts.

Taking into consideration the usefulness of EVA® , many companies have adopted it as part of a comprehensive management and incentive system, which leads their decision processes.

References

http://www.eva.com

Hock, C. (1999), Economic value added (EVA): its uses and limitations, SAM Advanced Management Journal

Carton, R., Hofer, C. (2006), Measuring Organizational Performance: Metrics for Entrepreneurship And Strategic Management Research

Tags: EVA, Key Performance Indicators, Measures, Metrics
Posted in KPI, Measure, Performance Measurement | No Comments »

Measuring hotel performance – RevPAR versus GOPPAR

Sunday, October 11th, 2009

RevPAR is perhaps the most popular Key Performance Indicator in the hospitality industry. The acronym stands for Revenue per available room and it measures the revenue generated by the lodging activities (exclusivelly) on a per room basis.

Its utility is undoubtful, covering many aspects that are relevant when assessing hotel performance, as revenue is generated by overall hotel attractivity. There are two accepted methods for calculating RevPAR:

1. Multiplying the $ Average daily room rate (ADR) to % Rooms occupancy. The average daily room rate is calculated by dividing the total rooms revenue to the number of rooms.

2. Dividing the $ Net daily rooms revenue (after discount and sales taxes and net of breakfast or other meals) by the # Rooms available.

GOPPAR, however does not take into consideration revenue exclusivelly, but also costs – GOPPAR stands for Gross operating profit per available room. It is calculated by dividing the gross operating profit (meaning revenue less departamental and operational expenses) to the number of rooms available on a per day basis.

It is clear that RevPAR deals with revenue and GOPPAR deals with profit. Therefore, it is argued that while RevPAR can reflect local/regional/national attractivity of the hospitality structures and trends in this respect, at a company level it can only help assessing the top line. GOPPAR, however, impacts the bottom line.

Moreover, while reflecting both costs and revenue and not revenue only, GOPPAR can be more suited for comparison between hotels of various dimensions and numbers of stars. Also, it has a more significant internal focus with insight on efficiency and costs control.

Thus, GOPPAR can enable a more accurate hotel performance appraisal, from both an external and internal point of view; yet, RevPAR is considered to be more used and popular, data availabiliy and comparability being more at hand in this context.

Further arguments can be brought in favor of both indicators of performance, while possibilities for new metrics can also be discussed.

Example of a debt service breakeven analysis (Younes and Kett, 2003)

Additional details about these two performance indicators are available on smartKPIs.com:

$ Revenue per available room (Revpar)

$ Gross operating profit per available room (GOOPAR)

For further information and statistics on RevPAR and GOPPAR values, from various markets and periods of time, you can access resources such as:

www.strglobal.com

www.researchandmarkets.com

An Investment Driven Breakeven Analysis for Hotels, by Elie Younes and Russell Kett, October 17, 2003

Tags: Hospitality, Hotel, Key Performance Indicators, Measures, Metrics
Posted in KPI, Measure, Performance Management, Performance Measurement | No Comments »

IQPC podcast on Government Performance

Friday, October 9th, 2009

A sneak preview for the upcoming Government Performance Monitoring & Accountability Conference, organised by IPQC in Melbourne, between October 27 – 29, 2009.

Podcast link: http://www.iqpc.com/Event.aspx?id=215484

Guest speaker: Susan Calvert, Director Strategy and Project Delivery Unit, DEPARTMENT OF PREMIER & CABINET, NSW.

Podcast time plot:

00:50 Could you tell us about your background in politics and performance monitoring?
01:12 How do you track the impact of your changes to policy implementation?
02:05 How does the Government measure ’soft’ policies or programs like social and environmental issues?
03:09 The Global Financial Crisis has required a shift in priorities for government with immediate performance, and increased transparency for Government expenditure, how can government respond?
04:18 What new processes are being explored to align measurement of performance across levels of Government?

Tags: Government, Podcast
Posted in Events, Government, Performance Management, Performance Measurement, Podcast | No Comments »

Government Performance Monitoring & Accountability Conference

Friday, October 9th, 2009

There are 19 more days until the start of the Government Performance Monitoring & Accountability Conference, organised by IPQC in Melbourne, Australia.

The conference agenda is structured on two days ( October 27-29, 2009 ) and will focus on:
* How to develop and sustain a flexible and responsive performance framework in order to monitor and evaluate your programs and services.
* How to take a whole-of-government approach to continuously improved services, policy implementation and programs.
* How to strengthen both vertical and horizontal accountability practices with integrated operations to support your strategic planning.

In addressing these issues, the conference will benefit from the insight of an impressive list of speakers, that includes Performance Management Practitioners from various Australian Goverment Departments:

Susan Calvert, Director Strategy and Project Delivery Unit, DEPARTMENT OF PREMIER & CABINET, NSW
Chris Jones, Manager – Strategic Performance and Information Management, CENTRELINK, ACT
Kathy Corbiere, Executive Director, Strategic Projects – Strategic Policy and Evaluation, Disability Services, DEPARTMENT OF COMMUNITIES, QLD
Terry Mehan, Deputy Director-General, Performance and Accountability, QUEENSLAND HEALTH
Anna Rados, Manager -Performance Unit, DEPARTMENT OF JUSTICE, VIC
Maria Katsonis, Executive Director – Public Policy and Organisation Reviews, STATE SERVICES AUTHORITY, VIC
David Dobbs, Director Performance Evaluation Taskforce – Local Government Group, DEPARTMENT OF INFRASTRUCTURE AND PLANNING, QLD
Javier Lopez, Senior Program Coordinator, PUBLIC SECTOR PERFORMANCE COMMISSION, SA
David Reid, Director Performance Review, OFFICE OF THE AUDITOR GENERAL, WA
Alex Dolan, First Assistant Secretary, Employment and Compliance portfolio, DEPARTMENT OF HUMAN SERVICES
Ben Jensen, Analyst, ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT (OECD)
Bella Sutherland, Program Manager, STATE SERIVCES COMMISSION, NEW ZEALAND
Ian Primrose, Managing Director, IAN PRIMROSE & ASSOCIATES.

Relevant links:
Conference page
Conference brochure

Tags: Government
Posted in Events, Government, Performance Management, Performance Measurement | No Comments »

500 KPIs documented on smartKPIs.com!

Monday, October 5th, 2009

smartKPIs.com team has achieved the target of 500 KPIs documented on the website by the beginning of October.

At the moment, the categories with the highest number of documented KPIs are the following:

Within the Functional areas:

Finance (56)

Sales (28)

Production (26)

Within the Industries categories:

Retail (22)

Manufacturing (18)

Government – State (18)

The documentation process is an outstanding learning experience for the team members; the lessons learned are to be shared soon with our online community, as new website features and improvements are in process of being developed.

User experience on www.smartKPIs.com

Learn: To learn more about performance management and Key Performance Management visit the Resources section.
Explore: To explore the library of KPI examples by navigating the functional area and industry directory, visit the Browse KPIs section.
Customize: To build your customized KPI library by saving favorite examples for later use, visit the My KPIs section.
Contribute: To propose a new example of KPI, visit the Submit KPIs section.
Collaborate: To collaborate with other users and to discuss KPI examples, add comments on each KPI description page.

Tags: Customised KPI library, Database of KPIs, Indicators, KPI example, Library of KPIs, Metrics, Performance Measures
Posted in Customized KPI library, KPI, Library of KPI examples, Measure, smartKPIs.com | No Comments »

The performance improvement journey

Thursday, October 1st, 2009

A business performance improvement journey needs a reason, a plan and a set of principles to follow.

The reason can simply be to improve your business performance. Some reasons can be much more diverse and complex. So, a possible starting point for your journey would be answering the following question: What would be your main reason for managing the organizational performance?

The plan is the set of steps that requires determination, patience and abilities to implement:

1. See where you are right now: analyze the business context, the organizational mission, the common understanding upon performance, the procedures in place, and the internal capabilities. The question to answer: what is the organization’s current status?

2. Set your direction: analyze what is the gap between your business current reality and where your organization will be by reaching performance.The question to answer is: where do you want the business to be, in a certain time from now?

3. Create the improvement performance plan: know the strategies you plan to implement, the resources you need and the way to get them. Plan how to cover the gap from your current status and where you want to drive your business. The question to answer is how to get to the performance you want.

4. Implementation time: put your plan into practice through consistent effort that encourages change and improvement. Set the organizational view upon improving results, processes and procedures through learning. Give it time, as it will not happen at once. Involve your employees. You need both KPIs and committed teams to excel in your journey. What does your organization do in order to achieve performance?

5. Monitor: gather data, review your plan and see your improvements. Compare them with your plan. Control what your data say and make future actions so that you keep on track with your performance improvement journey. The question to answer is what is the current performance level, compared to the initial plan?

The Best Practice Guide proposes a set of principles to follow along your journey can be: