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Key Performance Indicators: Developing, Implementing, and Using Winning KPIs, 3rd Edition



Key Performance Indicators: Developing, Implementing, and Using Winning KPIs, 3rd Edition

David Parmenter

ISBN: 978-1-119-01983-1 April 2015 448 Pages


Streamline KPIs to craft a simpler, more effective system of performance measurement

Key Performance Indicators provides an in-depth look at how KPIs can be most effectively used to assess and drive organizational performance. Now in its third edition, this bestselling guide provides a model for simplifying KPIs and avoiding the pitfalls ready to trap the unprepared organization. New information includes guidance toward defining critical success factors, project leader essentials, new tools including worksheets and questionnaires, and real-world case studies that illustrate the practical application of the strategies presented. The book includes a variety of templates, checklists, and performance measures to help streamline processes, and is fully supported by the author’s website to provide even more in-depth information.

Key Performance Indicators are a set of measures that focus on the factors most critical to an organization’s success. Most companies have too many, rendering the strategy ineffective due to overwhelming complexity. Key Performance Indicators guides readers toward simplification, paring down to the most fundamental issues to better define and measure progress toward goals. Readers will learn to:

  • separate out performance measures between those that can be tied to a team and result in a follow-up phone call (performance measures) and those that are a summation of a number of teams working together (result indicators)
  • look for and eradicate those measures that have a damaging unintended consequence, a major darkside
  • Sell a KPI project to the Board, the CEO, and the senior management team using best practice leading change techniques
  • Develop and use KPIs effectively with a simple five stage  model
  • Ascertain essential performance measures, and develop a reporting strategy
  • Learn the things that a KPI project leader needs to know
A KPI project is a chance at a legacy – the project leader, facilitator, or coordinator savvy enough to craft a winning strategy can affect the organization for years to come. KPI projects entail some risk, but this book works to minimize that risk by arming stakeholders with the tools and information they need up front. Key Performance Indicators helps leaders shape a performance measurement initiative that works.

About the Author xiii

Preface xv

Acknowledgments xxxi

PART I: Setting the Scene 1

CHAPTER 1 The Great KPI Misunderstanding 3

Key Result Indicators 4

Result Indicators 5

Performance Indicators 7

Key Performance Indicators 7

Seven Characteristics of KPIs 11

Difference between KRIs and KPIs and RIs and PIs 14

Lead and Lag Confusion 15

Number of Measures Required—The 10/80/10 Rule 19

Importance of Timely Measurement 21

Where Are You in Your Journey with Performance Measures? 22

Notes 23

CHAPTER 2 The Myths of Performance Measurement 25

Myth #1: Most Measures Lead to Better Performance 26

Myth #2: All Measures Can Work Successfully in Any Organization, At Any Time 26

Myth #3: All Performance Measures Are KPIs 27

Myth #4: By Tying KPIs to Remuneration You Will Increase Performance 28

Myth #5: We Can Set Relevant Year-End Targets 28

Myth #6: Measuring Performance Is Relatively Simple and the Appropriate Measures Are Obvious 30

Myth #7: KPIs Are Financial and Nonfinancial Indicators 31

Myth #8: You Can Delegate a Performance Management Project to a Consulting Firm 31

The Myths Around the Balanced Scorecard 32

Notes 42

CHAPTER 3 Unintended Consequence: The Dark Side of Measures 43

Example: City Train Service 44

Example: Accident and Emergency Department 44

Examples from Dean Spitzer’s Book 45

Performance-Related Pay 46

Dysfunctional Performance Measures Checklist 47

Notes 48

CHAPTER 4 Revitalizing Performance 49

Five Foundation Stones 51

The Many Facets of Performance Management 73

Notes 85

CHAPTER 5 Strategy and Its Relevance to Performance Measures 87

Articulate Your Organization’s Mission, Vision, Values, and Lean Management Principles 89

Create a Strategy That Is Understood by Staff 90

Ensure That Your Strategy Is Balanced 92

Monitor Implementation of Your Strategy 94

Creating the Future 96

Notes 97

PART II: Winning KPI Methodology 99

CHAPTER 6 Background to the Winning KPI Methodology and Its Migration 101

The Original 12-Step Process 101

The New Six-Stage Process 103

Winning KPI Methodology and Its Migration 103

An Overview of the Six Stages 105

CHAPTER 7 Foundation Stones for Implementing Key Performance Indicators 107

“Partnership with the Staff, Unions, and Third Parties” Foundation Stone 109

“Transfer of Power to the Front Line” Foundation Stone 110

“Measure and Report Only What Matters” Foundation Stone 111

“Source KPIs from the Critical Success Factors” Foundation Stone 113

“Abandon Processes That Do Not Deliver” Foundation Stone 114

“Appointment of a Home-Grown Chief Measurement Officer” Foundation Stone 116

“Organization-Wide Understanding of the Winning KPIs Definition” Foundation Stone 118

Notes 119

CHAPTER 8 Getting the CEO and Senior Management Committed to the Change (Stage 1) 121

Obtaining Senior Management Team Commitment 122

Agree on Timing, Resources, and Approach 126

Benefits of This Stage 131

Templates and Checklists 132

Notes 132

CHAPTER 9 Up-Skill In-House Resources to Manage the KPI Project (Stage 2) 133

Establish a Winning KPI Team Working Full Time on the Project 133

Establish a Just-Do-It Culture and Process 139

Benefits of This Stage 144

Templates and Checklists 144

Notes 144

CHAPTER 10 Leading and Selling the Change (Stage 3) 145

Leading Change by John Kotter 146

Learn to Sell by Appreciating the Emotional Drivers of the Buyer 147

Sales Pitches You Will Need to Make to Get the Go-Ahead 149

Selling the Winning KPIs to the Organization’s Staff 156

Benefits of This Stage 160

Templates and Checklists 160

Notes 160

CHAPTER 11 Finding Your Organization’s Operational Critical Success Factors (Stage 4) 161

Operational Critical Success Factors versus External Outcomes 162

Operational Critical Success Factors—The Missing Link 163

Rules For Ascertaining the Operational Critical Success Factors 165

Characteristics of Critical Success Factors 170

Four Tasks for Identifying Operational Critical Success Factors 170

Alternative Methodologies 185

Benefits of This Stage 187

Templates and Checklists 188

Notes 188

CHAPTER 12 Determining Measures That Will Work in Your Organization (Stage 5) 189

How to Derive Measures: An Overview 190

Ascertain the Team Performance Measures 191

Recording Performance Measures in a Database 199

Sorting the Wheat from the Chaff 202

Find the KRIs That Need to Be Reported to the Board 203

Find the Winning KPIs 205

Measures Gallery 206

Benefits of This Stage 208

Templates and Checklists 208

Notes 208

CHAPTER 13 Get the Measures to Drive Performance (Stage 6) 209

Develop the Reporting Framework at All Levels 209

Facilitate the Use of Winning KPIs 213

Refine KPIs to Maintain Their Relevance 217

Benefits of This Stage 218

Templates and Checklists 219

Notes 219

CHAPTER 14 Reporting Performance Measures 221

The Work of Stephen Few in Data Visualization 222

Reporting the KPIs to Management and Staff 223

Reporting Performance Measures to Management 228

Reporting Performance Measures to Staff 231

Reporting Performance Measures to the Board 231

Reporting Team Performance Measures 241

How the Reporting of Performance Measures Fits Together 243

Designing Reports Around Current Technology 244

Notes 245

PART III: Chief Measurement Officer’s Toolkit 247

CHAPTER 15 Resources for the Chief Measurement Officer 249

The CMO Needs a Cluster of Mentors 249

Guidelines for the External KPI Facilitator 250

Remember the Fundamentals 252

Resources 253

Running Workshops 256

Implementation Lessons 257

Templates and Checklists 268

Notes 269

CHAPTER 16 Case Studies on the Critical Success Factor Workshops 271

Private Sector Case Study # 1: An Asian Conglomerate 271

Private Sector Case Study #2: Medical Company 274

Private Sector Case Study #3: Forestry Company 276

Private Sector Case Study #4: Car Manufacturer 277

Private Sector Case Study #5: Timber Merchant 278

Private Sector Case Study #6: Investment Bank 278

Nonprofit Membership Organization Case Study #1: Golf Club 279

Nonprofit Membership Organization Case Study #2: Surf Life Saving 281

Government Department Case Study #1 284

Government Department Case Study #2 286

Professional Accounting Body Case Study 287

Charity Case Study 287

CHAPTER 17 Common Critical Success Factors and Their Likely Measures 289

CHAPTER 18 Comparison to Other Methodologies 299

Main Differences Between the Balanced-Scorecard and Winning-KPIs Methodologies 299

Stacey Barr’s PuMP 304

Paul Niven’s Balanced Scorecard Work 307

Notes 309

CHAPTER 19 CEO Toolkit 311

Letter to You, the Chief Executive Officer 311

Measurement Leadership Has to Come from the Chief Executive Officer 314

Note 316

APPENDIX A Foundation Stones of Performance-Related Pay Schemes 317

The Billion-Dollar Giveaway 317

The Foundation Stones 318

Notes 333

APPENDIX B Draft Job Description for the Chief Measurement Officer 335

Outline 335

Duties/Responsibilities of the Chief Measurement Officer 336

Skills and Experience 337

APPENDIX C Delivering Bulletproof Presentations 339

APPENDIX D Presentation Templates 347

APPENDIX E Performance Measures Database 349

Index 399