Once in a cricket match, a reputed commentator was commenting on batsman’s performances. The issue was regarding top batting averages and list contained lot many Indian and Australian players. Commentator was spot on by saying “DOES THESE AVERAGES REFLECTS BATSMAN’S PERFORMANCE CORRECTLY?” The objective was to assess the players performance from all the angle rather than only simple arithmetical averages. He hit the bull’s eye by saying that the standard deviation would be more suitable measure to know consistency, longevity of best form, performance in various conditions, volatility from is average performance on and on. He was also insisting on other intangible performance measures to gauge the performance of a player. The topic was so technical and that developed curiosity to know the academic background of the commentator.. The commentator is MBA from IIM (Ahmadabad) and is our own Harsha Bhogle. Knowledge of the education was excellently applied in the field of games and generating valuable information about performance. Factors like consistency of player, performance against all countries, ability to handle crunch situation, delivery of output in demanding situations, gelling with other team members, shouldering responsibilities, fast decision makings etc, makes even an average player an outstanding player. That is why Rahul Dravid supersedes batting maestro Sachin Tendulkar in list of greatperformers.
KPI’s- UNIQUE YARDSTICK FOR MEASURING BUSINESS PERFORMANCE
By applying the same parameters to the business performance measurement, the business performance should be judged not only on traditional methods of measuring REVENUE and PROFITS but litmus test should be applied to almost all or at least major spheres of business environment.
It is normally seen that in day to day life, we are measuring and relying on the performances when it comes to decision making. These parameters may differ from person to person due to different objectives. If objective of an investor is only to earn higher returns then return on investment would be a good indicator. But once factors like risk free returns, exposure restriction to various sectors for investment, uncertainty and volatility of market comes in picture measuring indicators starts changing. The results derived out of the changed indicators influenced investors to take different decision supporting his own objectives. Business Performance Measurement is concerned with measuring the efficiency and effectiveness of actions aggregating and standardizing information; setting appropriate targets. The development of key performance indicators (KPI’s) plays an important role in formulating and clarifying plans and strategies and setting targets for employees, project teams and business units. There are other intangible and non financial areas affecting the business which must be given due care to assess the functioning of the business. While this paper discusses importance of Key business performance Indicators (KPI), an endeavor has been made to explain novel method of evaluation of business functioning by own self and we feel that the result will be selfexplanatory.
Need to Measure Business Performance:
Business performance measurement has a variety of uses. A well balanced performance measurement system will help to:
• Develop, discuss and formulate the company’sstrategy
• Communicate the strategy throughout the organisation
• To monitor and control activities
• To drive improvement
• To maximize the effectiveness of the improvement effort
• To achieve alignment with organizational goals andobjectives
• To reward and to establish discipline
Building up KPI’s:
A performance measurement system should ensure that a limited and manageable number of measures are chosen and that the measures are balanced in terms of:
• Financial and non-financialmeasures;
• Leading and lagging indicators (input, process and outputmeasures);
Selection of Key performance indicators (or key success indicators) which are appropriate to a particular organization ought to be made in the light of organizations goal which is formed by it considering the competitive environment in which it operates. However they must be quantifiable may or may not be in monitory terms but in different units.
The most apparent effect of the introduction of a KPI system into an organisation is the re-evaluation and re-examination of operating procedures. The indicators are helping in improving efficiencies and effectiveness in core and allied areas. The analysis and monitoring of KPI's could be useful in policy restructuring, objective monitoring and decision making. KPI’s can be effective tool in process or business re-engineering, business innovation.
Areas to be assessed in business:
Performance indicators differ from business to business, organisation to organisation. There can not be a standard set of performance indicators applicable to all but may be some indicators would be common to all. KPI’s could be helpful in assessing:
• Functions –Like purchases, sales andmarketing
• Processes
• Product andservices
• HumanResources
• InformationSystem
• Management andOrganization
Few of the interesting KPI’s:
Marketing and Sales:
• Addition of new customers in aperiod
• Maintenance of old and new referrals from old customer in aperiod
• Delays in shipments/ delivery (Affecting goodwill)
• Customer satisfactionindex.
Process:
• Ability of process to deliver end result –an internal evaluation
• Alignment of process with Objectives of the business through process deliverables.
• Processing time
Product or Service:
• Failures in % units sold/services given
• No. quality complaints fetching liability
• Time taken to solve service-complaints
Human Resources:
• Rate of attrition
• State of staff-morale
• Existence of progressive staff evaluation methods
Information Systems:
• Responsiveness of systems to changing environment
• Integrity of data for decision support
• Timeliness of reports in right format.
• Effective reporting of Exceptions
Management and Organization:
• Ability to buildup strong culture within organisation
• Capability to build knowledge and nurturetalent
• Capacity to imbibe ethics and code within organization
• Professionalism in decisionmaking
• Effective training
Effectiveness accomplished through KPI’s in Various Industries:
• Reduction in turnaround time (Engineering Service, banks, Hotels, Restaurantsetc.)
• Reduction in cost of service ( Hospitals, Hotels, Automobileetc)
• Increase in no. of services in a period. ( Hospitals, Hotels, Automobileetc)
• Increase in Annual Maintenance contracts (Engineering and softwareindustries)
• Reduction in supply chain cycle (Trading and Manufacturingindustries)
• Increase in referral customers in business (Hospital, Education andHospitality)
One could easily understand from above quotes that KPI’s are different from ratio analysis, trend analysis, budgeting and forecasting. Ratio’s, trends are having their own importance in success of business, decision making and policy framing. However KPI’s are instrumental in overall candid assessment of the business performance.
Definitive Note:
It is seen that though the financial measures are essential, still so much remains to broadcast the merits of non financial performance measurement indicators to judge the actual performance of the organization. Indeed, the time has come for the organizations to look beyond conventions and adopt best practices to excel in aggressive and challenging business environment where adherence to KPI’s is definitely a wayahead.
It is an immutable law in business that words are words, explanations are explanations, promises are promises, only performance is reality. Harold Geneen, successful American entrepreneur.
By CA Nitin Alshi
B.com,FCA, ACMA,DISA(ICA), PGDERM
© Copyright 2018 Nitin Alshi & Associates. All Rights Reserved.