# Key Performance Indicators ## Metadata * Author: [David Parmenter](https://www.amazon.comundefined) * ASIN: B07ZS4CJX5 * Reference: https://www.amazon.com/dp/B07ZS4CJX5 * [Kindle link](kindle://book?action=open&asin=B07ZS4CJX5) ## Highlights Example: Accident and Emergency Department The National Health Service in the UK has set a four-hour target to treat all patients who turn up for treatment at accident and emergency (A&E). The A&E are measured on the time from patient registration to being seen by a house doctor. Hospital staff soon realized that they could not stop patients registering with minor ailments, but they could delay the registration of patients in ambulances as they were receiving good care from the paramedics. The nursing staff thus began asking the paramedics to leave their patients in the ambulance until a house doctor was ready to see them, thus improving the “average time it took to treat patients.” Each day there would be a parking lot full of ambulances and some circling the hospital. This created a major problem for the ambulance service, which was unable to deliver an efficient emergency service. Lesson: Management should have been focusing on the timeliness of treatment of critical patients, and thus they only needed to measure the time from registration to consultation of these critical patients. Nurses would have treated patients in ambulances as a priority, the very thing they were doing before the measure came into being. Far too often we do not sort out the wheat from the chaff. — location: [717](kindle://book?action=open&asin=B07ZS4CJX5&location=717) ^ref-45692 --- Example: Fast Food Service A fast food chain wanted to reduce the chicken waste so they held a competition. They would fly the winning manager and their family to a well-known resort. A restaurant manager who was under performing and feeling the pressure, both at home and work, saw the competition as the opportunity to rectify both issues. The manager got the shifts to assemble and explained his plan. “I want you to take the chicken out of the freezer when you receive an order and not before.” “But boss, that will lead to huge queues both in the restaurant area and in the drive through,” his supervisors explained. “Do not worry, we will only do this for the week of the competition.” The manager won the chicken waste award and was hailed in the head office as a hero, and an example of what was possible. Until the next week's revenue numbers came in. All the customers caught up in the long queues had taken their custom elsewhere. When head office investigated, they were flabbergasted. “How could you think of such a change to procedure?,” they asked. “I delivered your zero waste you wanted,” replied the unrepentant manager. Lesson: Tying a reward to an important measure will lead to gaming. Low chicken waste should be treated “as a ticket to the game.” — location: [730](kindle://book?action=open&asin=B07ZS4CJX5&location=730) ^ref-12788 --- The Three Major Benefits of Ascertaining an Organization's Critical Success Factors There are three major benefits of ascertaining an organization's critical success factors and the associated performance measures: A clarity of purpose, from aligning the daily staff actions to the organization's critical success factors. Improving performance through having few and more meaningful measures. Creating wider ownership, empowerment, and fulfillment at all levels of the organization. — location: [762](kindle://book?action=open&asin=B07ZS4CJX5&location=762) ^ref-13289 --- Confusion on what KPIs are and what they can and should do Too many of the wrong measures Measuring far too much at the bottom of the cliff Calling all measures KPIs — location: [847](kindle://book?action=open&asin=B07ZS4CJX5&location=847) ^ref-4478 --- Jeffrey Liker's The Toyota Way9 explains what makes Toyota so special. How in Toyota every employee is expected to reflect each day “What could I do better tomorrow?” and come up with at least one innovation per month, no matter how small. The Toyota average, internationally, is 10 innovations per employee per year. If you want to learn more on continuous improvement (Kaizen), this is the book to read. — location: [907](kindle://book?action=open&asin=B07ZS4CJX5&location=907) ^ref-2203 --- Elizabeth Haas Edersheim's summary of Drucker's work, The Definitive Drucker: Challengers for Tomorrow's Executives—Final Advice from the Father of Modern Management.10 The greatest book ever written on Drucker's work and that includes his own books. I consider Peter Drucker to be the Leonardo da Vinci of management—I believe he will be better understood and respected 400 years from now. All managers and leaders should devour this book and refer to it constantly. — location: [911](kindle://book?action=open&asin=B07ZS4CJX5&location=911) ^ref-42565 --- Too Many of the Wrong Measures Organizations using the balanced scorecard approach frequently end up with 200–300 measures. I believe an organization only needs up to 100 measures, around 10 KPIs and key result indicators (KRIs) and 80 performance indicators (PIs) and result indicators (RIs). These terms are explained in Chapter 1. Chapters 3 and 6 explain the need for a center of expertise to be established within the organization to design and test measures before they are used. — location: [949](kindle://book?action=open&asin=B07ZS4CJX5&location=949) ^ref-52661 --- KPIs should be developed as if scarcity was a key consideration; as if every KPI used comes with a high cost. Asking “If we could only measure or indicate one thing…what would it be?” is a great place to start in determining KPIs as you find what is really important. Developing KPIs is most effective if there is discussion across the business on what is essential and resist the temptation to measure too many things. — location: [967](kindle://book?action=open&asin=B07ZS4CJX5&location=967) ^ref-19732 --- Net promoter score: The likelihood of a referral is a result of the many interactions with the customer and is a good key result indicator, ideal for reporting progress to the board. However, instead of looking at this measure management we need to be measuring, on a daily basis, selected measures from the initial touch that we have from our marketing and sales engagements, the delivery and invoicing of a service or product, the service experience, and the way we maintain an ongoing relationship with them. — location: [990](kindle://book?action=open&asin=B07ZS4CJX5&location=990) ^ref-51687 --- The fix: Chapter 1, The Great KPI Misunderstanding, explains that there are four types of measures split into two groups. — location: [1007](kindle://book?action=open&asin=B07ZS4CJX5&location=1007) ^ref-47795 --- Example: An Airline KPI My favorite KPI story is about a senior British Airways official who set about turning British Airways (BA) around in the 1980s by reportedly concentrating on one KPI. — location: [1507](kindle://book?action=open&asin=B07ZS4CJX5&location=1507) ^ref-45047 --- The senior BA official employed some consultants to investigate and report on the key measures he should concentrate on to turn around the ailing airline. They came back and told the senior BA official that he needed to focus on one critical success factor (CSF), the timely arrival and departure of airplanes. The consultants must have gone through a sifting process sorting out the success factors that were critical from those that were less important. Ascertaining the five to eight CSFs is a vital step in any KPI exercise, and one seldom performed. In Exhibit 1.1 the CSFs are shown as the larger circles in the diagram. — location: [1510](kindle://book?action=open&asin=B07ZS4CJX5&location=1510) ^ref-30882 --- The Seven Characteristics of KPIs From extensive analysis and from discussions with over 3,000 participants in my KPI workshops, covering most organization types in the public and private sectors, I have concluded that KPIs have seven characteristics, as set out in Exhibit 1.2. Exhibit 1.2 The Seven Characteristics of KPIs Nonfinancial Nonfinancial measures (e.g., not expressed in dollars, yen, pounds, euros, etc.) Timely Measured frequently (e.g., 24/7, daily, or weekly) CEO focus Acted upon by the CEO and senior management team Simple All staff understand the measure and what corrective action is required Team based A team can be phoned, and they will accept responsibility, and can take action to improve measure Significant impact Major impact on the organization's critical success factors Limited dark side Have been tested to ensure that they have a positive impact on performance, with any unintended consequence being of minor significance Non financial. When you put a dollar, yen, pound, or euro sign on a measure, you have already converted it into a result indicator (e.g., daily sales are a result of activities that have taken place to create the sales). The KPI lies deeper down. It may be the number of visits to contacts with the key customers who make up most of the profitable business. Timely. KPIs should be monitored 24/7, daily, or perhaps weekly for some. A monthly, quarterly, or annual measure cannot be a KPI, as it cannot be key to your business if you are monitoring it well after the horse has bolted. I have yet to see a monthly performance measure improve performance. CEO focus. All KPIs will have the CEO's constant attention with daily calls being made to the relevant staff enquiring about exceptions or recognizing their outstanding performance. Staff will perceive talking about poor performance with the CEO, on a regular basis, as career-limiting and will take innovative steps to prevent recurrences. Simple. A KPI should tell you what action needs to be taken. The British Airways late-planes KPI communicated immediately to everyone that there needed to be a focus on recovering the lost time. Cleaners, caterers, baggage handlers, flight attendants, and front desk staff would all work some magic to save a minute here and a minute there while maintaining or improving service standards. Team based. A KPI is deep enough in the organization that it can be tied to a team. In other words, the CEO can call someone and ask, “Why did this happen?” and that manager will take on the responsibility to fix the issue. Return on capital employed has never been a KPI, because the CEO would get nowhere saying to a GM, “Pat, I want you to increase the return on capital employed today.” Significant impact. A KPI will affect a number of the organization's critical success factors. In other words, when the CEO, management, and staff focus on the KPI, the organization scores goals in many directions. — location: [1576](kindle://book?action=open&asin=B07ZS4CJX5&location=1576) ^ref-37610 --- Performance Indicators An organization, with over 500 FTEs, will have about 10 KRIs, up to 80 RIs and PIs, and 10 KPIs. — location: [1631](kindle://book?action=open&asin=B07ZS4CJX5&location=1631) ^ref-50916 ---