Before the KPI comes the KPQ
If you can believe Google, Peter Drucker said “What gets measured gets managed” and Michael LeBoeuf said “What gets measured gets done”. Either way, for me, a key performance indicator (KPI) is the method a business can bring at-a-glance visibility to the performance of an area of its operations. A worthwhile KPI has a number of things: it will measure a meaningful input and/or output, it will have a comparison against benchmarks (good and/or bad), and it will be presented in a visually arresting way that is instantly understandable. Big/up/green/high% = good, small/down/red/low% = bad.
The issue with KPIs (and the dashboards that they get published on) is that frequently people are presented with just too much information. When you bury people with data it just becomes noise and there goes any chance of changing performance and improving the outcomes.
If you are going to have KPIs (and I think you should) they need to be categorised. Some years ago when designing the foundations for iPOS eProcurement for SunSystems Dashboard, we segmented the likely metrics into three areas: mend, spend and trend. This allowed for the KPI widgets to be properly grouped in a way that helped people understand what they were looking at.
So the mend page indicated activities that required imminent attention to ensure smooth running of the procurement cycle. For example, “delayed approvals”, “overdue un-receipted orders”, “unmatched invoices” and the like. The spend page exposed information about spending habits, supplier analysis, category analysis, process efficiencies, etc. For example, “average spend by FTE by category/location/period”, “Google mapped supplier location by delivery address”, “ratio of invoices with PO refs”, “supplier DIFOT analysis by category”, “top 10 category suppliers by volume and spend”, “ratio of spend via preferred suppliers”. In addition, the trend page covered things like “year on year spend category analysis”, “item pricing trends”, “supplier DIFOT over time”, “heat map analysis”, etc.
This grouping wasn’t a mandatory implementation rule, it was purely an example to help people consider how to best present relevant information and what data analyses supported business outcomes.
The must-have for every KPI is a KPQ, a key performance question. That question needs to answer a specific issue directly linked to the objectives and goals of the business and have someone who cares about it. If you can’t define the KPQ then don’t bother creating a KPI. In itself “yearly spend analysis by category supplier” is not a KPI, it’s a report. However when applied to the question, “are our input costs increasing by more than the budgeted X% per year?” it becomes a KPI.
If you agree that only the things that get measured get done then have a look at the things that you are failing to get done. Craft the KPQ that links the activity to a strategic purpose. Identify the data inputs and threshold(s) that will answer that question. Develop the KPI widget and publish it to the people that you want to care. Gather your KPIs into relevant categorisations. Mothball anything that doesn’t have a KPQ. Simplify your dashboard to focus people on the important and align their activities to the business goals.
You can read other eProcurement blog posts here.
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