This document provides an overview of key performance indicators (KPIs) and performance management systems. It discusses what KPIs are, how to establish goals and objectives, different types of KPIs, using the balanced scorecard approach, and the benefits of implementing a performance management system. The document contains several sections that define concepts, provide examples, and outline best practices for setting up an effective KPI and performance management system.

1. Introducing the KPIs
Hj Arriffin Mansor
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2. Contents of this talk
1. What is KPI
2. Key Result Areas or critical success
factors
3. How to set performance targets
4. Bench markings to the best
5. Performance measuring system.
6. How could KPI improve performance;
7. Conduct Gap Analysis
8. Application of KPI system
9. Pitfalls in KPI implementation;
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3. Contents - continue
1. Performance improvement framework
2. Programs / initiatives
3. Performance Framework
4. Improvement cycle
5. Business Strategies in metrics
6. Departmental key performance indicators
7. Input output performance analysis
8. Performance management dashboards
9. Action plan

5. What is Diagnosis?
• Diagnosis is the process of understanding how the
organization is currently functioning, and it provides
information necessary to design change interventions.
• It is also a collaborative process between organization
members and the OD (organization development)
consultant to collect pertinent information, analyze it, and
draw conclusions for action planning and intervention.

6. Before Training
• Build transfer of training into supervisory
Manager performance standards
• Collect baseline performance data
• Involve supervisors and trainees in needs
analysis process
• Involve trainees in program planning
• Brief trainees on the importance of the training
(course objective, content, process, and
application on the job)
• Review instructional content and materials
• Plan to participate in training sessions
• Encourage trainees attendance at all sessions

7. Before Training
• Align the training plan with the organization's
Trainer strategic plan
• Systematically design instruction
• Provide proactive opportunities
• Design a peer coaching component for the
program and its follow-up activities

8. Before Training
• Provide input into program planning
Trainee • Actively explore training options
• Participate in advance activities

9. During Training
• Prevent interruptions
Manager • Transfer work assignment to others
• Monitor attendance and attention to training
• Recognize trainee participation
• Participate in transfer action planning
• Review information on employee in training
• Plan assessment of transfer of new skills to the
job

10. During Training
• Develop application-oriented objectives
Trainer • Answer the “WIIFM” question
• Manage the unlearning process
• Provide realistic work-related tasks
• Give individualized feedback
• Provide job performance aid

11. During Training
• Maintain an ideas and application notebook
Trainee • Participate actively
• Form support groups
• Plan for applications
• Create behavioral contracts

12. After Training
• Plan trainees’ reentry
Manager • Provide opportunities to practice new skills
• Have trainees participate in transfer-related
decisions
• Reduce job pressures initially
• Give positive reinforcement
• Schedule trainee briefings for co-workers
• Set mutual expectations for improvement
• Arrange proactive (refresher) sessions
• Provide and support the use of job aids

13. After Training
• Provide follow-up support
Trainer • Conduct evaluation surveys and provide
feedback
• Develop and administer recognition system
• Provide refresher/problem-solving sessions

14. After Training
• Practice self-management
Trainee • Review training content and learned skills
• Develop a mentoring relationship
• Maintain contact with training ‘buddies’

15. What is KPI?
Stands for Key Performance Indicator
Is a measure of efficiency or effectiveness
Efficiency is a ratio of output divided by input
which are generally financial in nature
However there are also non-financial KPIs
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16. Key Performance Indicators
• KPI was introduced by Peter Drucker
when he envisaged “management by
objectives” a situation where defining a
clear objective is paramount in effective
management.
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17. What is a KPI system?
• A framework consisting of processes,
measures, and targets that are used to
communicate, monitor and manage
performance as well as align resources to
achieve the objectives of the organisation
"
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18. diagnosis MONITORING BOARD
Strategy
Evaluation
Change
© Arriffin Mansor 2010 ACTION PLANS

19. PERFORMANCE FRAMEWORK
Diagnose
Strategise
Goal setting and
Objectives
Performance Targets /
STRATEGIC MAPPINGS Standards and
Key Result Areas
Benchmarkings
Key Performance
Indicators Evaluate
Change
19

20. Arriffin KPI management 20

22. Definition of performance
management
An umbrella term used to describe
the methodologies, metrics,
processes and systems used to
monitor and manage the business
performance of an enterprise.*
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23. Another definition of PMS
• It is a systematic, integrated management
approach that links enterprise strategy to
core processes and activities. By
providing planning, budgeting, analysis
and reporting capabilities, PMS allows the
business to be "run by the numbers" and
measurement to drive management
decisions.
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24. Objective of PMS
• The objectives of an effective performance
management system are to realize
improved performance -- increased
profitability, growth, competitiveness,
quality and customer satisfaction, to name
a few.
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25. Components of PMS
At minimum, the critical components of PMS include the following:
2. A set of well-defined, measurable, and published corporate
performance objectives that act as the focal point for developing
performance measures in functional areas within the company.
3. A set of standard metrics that are used to define and describe the
relative contribution or influence that business functions within the
organization have on the performance objectives.
4. The first two components provide a common framework for
measurement, collaboration and cross- functional understanding
of the effect of each area's performance on the overall company
objectives, as well as the influence each organization has on the
performance of other organizations within the enterprise.
5. The ability to predict outcomes based on the common framework
for understanding and collectively managing performance -- from
high-level objectives to operational activities.
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27. The Star
Tuesday May 17, 2005
Nor Mohamed wants GLCs to
start implementing growth
strategies
SECOND Finance Minister Tan Sri Nor Mohamed Yakcop wants
government-linked companies (GLCs) to start implementing growth
strategies this year, saying that this is “the year of implementation for the
GLCs”.
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28. Establishing goals – (1)
1. Targets have been established for improving current levels of
performance.
2. Targets are achievable, but they may require changes to
existing processes.
3. Targets are quantifiable so that the target communicates if
the expected performance was met.
4. Longterm Targets (3 to 5 years) stretch the organization
towards its strategic goals.
5. Longterm Targets are established first before short term
targets.
6. Financial related targets are established first before non
financial targets.
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29. Establish Goals and objectives
Criteria for
Define Goals
Criteria Menu Defining Goals
Marketplace
Industry Trends
Technology
Competition
Past
Performance
___________
___________
___________
___________
We will increase revenues by 40% over the
Past Performance
EXAMPLE -> next three years
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30. SMART(ER) Objectives
• Specific: clear, unambiguous, straightfordward,
understandable
• Measurable: can be related to quantified or qualitative
performance measures
• Achievable: Objective should be realistic and within
known resources
• Relevant: Linked to operational/service plan
• Timebound: Building in target date & review dates
• Extending Capabilities: Stretching team performance
• Recognition: Acknowledgement of team achievement,
reflection, learning
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31. The Challenge…
Improving Performance
Turning Management (PM)
Data
Into
Actionable
Information
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32. Strategic Focused Management Process
Strategy
Balanced Scorecard
PMS
Align organization to
strategy
Translate strategy
into operating terms
Mobilize change
starting at the top
Make strategy a
continuous process
Make strategy
everyone's job
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33. Key result areas
• Drucker also introduced the concept of
key result areas where minimum effort is
directed and focus which would generate
maximum impact to the objectives.
• KRA has a strong causal relationship with
the objectives.
• Other ways of identifying KRA is sensitivity
analysis, pareto and root cause analysis
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34. What is a Key Result
Areas? – (2)
 A key area where satisfactory performance
is required for the organization to achieve its
goals
 A means of identifying the tasks and
requirements needed for success
 At the lowest level, KRAs become concrete
requirements
 A means to prioritize requirements
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35. Michael Porter’s
Business-Level Strategy
Cost
Differentiation
Leadership
Focus
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36. PMS ensures that performance
is measured at all levels?
Organizational
Objectives
Divisional
Objectives
Departmental
Objectives
Individual
Objectives
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37. More Difficult Specific Goals
Goals Lead Lead to
To Higher Better Results
Performance
Does PMS
Work?
Support from
Top Participation
Management Is Key
Is Critical
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38. Measuring Performance
Input output ratio analysis
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39. Performance Analysis
• Take input output data of before and after
performance.
• Using the ratio O/I calculate targeted KPI
and compare against actual KPI.
• Eliminate the impact of extra input.
• Calculate the pure performance output as
a result of efficiency or competency.
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40. Measures
Measuring overall MARKETING DEPARTMENT
Return on Sales Sales Turnover Return on assets
Standard Standard Standard
Assets
Sales Assets
Performed Performed Performed
Profits Sales Profits
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41. Efficiency indicator
PROFIT MARGIN
10%
ORIGINAL KPI
LINE p
SALES
12%
IMPROVED KPI
LINE
10
Input
Change
4
12000 14400 16800
Profit
RM
Efficiency Volume
impact Impact
TOTAL IMPROVEMENT = Efficiency + volume
improvement
4800 = 2400 2400
4800 = 16800 12000
© Arriffin Mansor
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42. Types of KPIs
• Lead and lag
• Input output process and outcomes
• Drivers and enablers
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43. Balanced Scorecard
Chain of Causality of Performance Measures
Drivers Moderators Outcomes
(lead indicators) (lag indicators)
Cycle Times Customer ROA
Satisfaction EVA
• Customer order
fulfillment EPS
• Product assembly
cycle time Manufacturing
Quality Unit Costs
• Defect rate
• Scrap rate
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44. Internal Business Process Measures
(Source: Kaplan & Norton, 1996)
Model of Internal Business Process Logistics
Customer Innovation Operations Post-Sale Customer
Need Process Process Service Need Satisfied
Identified Process
Identify Create Build Deliver Service to
Market Product Product Product the
Customer
• Development • Quality • Delivery • Service
Relevant Cycle Time Defects Cycle Satisfaction
Metrics:
Time
• MCE
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45. Corporate Goals & key variables
•Pricing 5%
•Costs Profit 10% 20%
•Expenses Margin Return on Return on
•Product Mix Assets Equity
(leverage)
•Inventory & Receivable Asset
Management Turnover
•Fixed Asset 2.0
Management
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46. Performance Network
Profit/Capital Employed
Profit/ Revenue Revenue from Sales/
from Sales × Capital Employed
Revenue from Labor Cost/ Labor Cost/
Sales/ Total Cost ÷ Total Cost × Capital Employed
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48. What is so special about
the PMS?
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49. What so special about PMS
• It is personal yet organisational
• Performance goal is objective yet
collective
• Leadership, teamwork and synergy
• Learning and coaching take place at all
times
• Continous improvement through
innovation and best practises
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50. Balanced Scorecard Perspectives
New Focus:
Balanced measurement of 4 equally important criterias or dimensions
CUSTOMER
EMPLOYEE & GROWING
RELATIONSHIP BIGGER & STRONGER / FINANCIAL
ACHIEVE GOP
INTERNAL
PROCESSES
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51. THE benefits of PMS?
• Improve your organisation / structure
• Improve communication (Internal / External)
• Link strategy towards operation and towards
measured performance
• Focus on results
• Strategies are integrated into total management
• New approach to measure performance
• Diverse / complete measurement with benefits for
all stake holders
• Use the PMS as a team-building tool
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52. Reasons for PMS
1. Focus on traditional financial accounting
measures such as ROA, ROE, EPS gives
misleading signals to executives with
regards to quality and innovation. It is
important to look at the means used to
achieve outcomes such as ROA, not just
focus on the outcomes themselves.
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53. Reasons for PMS
2. Executive performance needs to be
judged on success at meeting a mix of
both financial and non-financial measures
to effectively operate a business.
3. Some non-financial measures are drivers of
financial outcome measures which give managers
more control to take corrective actions quickly.
(Example: controls in jet cockpit for pilot)
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54. Reasons for PMS
4. Too many measures, such as hundreds
of possible cost accounting index
measures, can confuse and distract an
executive from focusing on important
strategic priorities. The balanced
scorecard disciplines an executive to
focus on several important measures that
drive the strategy.
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56. Key Result Areas
1. There are no more than five strategic themes.
2. Strategic themes are realistic and achievable within the
organization
3. Themes support and connect with strategic goals.
4. Themes convey a positive impact upon the organization.
5. Themes place focus and direction on what is important.
6. Each theme is distinct and different.
8. Themes are strategic in scope and not tactical day to day.
9. Themes are consistent with the mission and vision of the
organization.
10. Themes have an impact on the financial objectives of the
organization.
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57. Key Result Areas Guidelines
s Those 4 to 6 major areas wherein performance is
essential during the coming year.
s Include both financial and non-financial areas.
s Will not cover the entire organization—will
identify the critical few areas where priority
efforts should be directed.
s Most will require cross-functional effort.
s Each will be limited, generally, to 2 or 3 words
and will not be measurable as stated, but will
contain factors that could be measurable.
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58. 4 key result areas
Financial Customer ->
• ROI • Quality
• EVA
• Revenue
• Service
• Earnings • Pricing
• Capital • Time
• Cash Flow • Image
• Relations
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59. Key Result Areas
• Internal Processes ->
• Production Learning ->
• Delivery
Employee
• Marketing
• Operations HR Capital
• Knowledge LEARNING
Quality Control
• Service Dept Technology
• R&D
Best Practices
•
Intangibles
•
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61. The Benefits of KPIs
• More clearly defined objectives
• Better quality of services rendered
• Objective evaluation of performance.
• Strategies clearly communicated to
all levels within the organisation.
• Performance improvement strategies
identified.
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62. Some example of KPIs
Under the heading of the 4
perspectives
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63. KPIs in a typical private firms
Customer Perspective: KPI or measures include:
1. % of revenue from new customers
2. Customer retention rate
3. Market share
Financial Perspective: KPI or measures include:
• Profit ÷ revenue
• Revenue ÷ total cost
• ROI and/or ROA
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64. Relating to the Balanced Scorecard (typical private
firms)
Internal Business Perspective: KPI or
measures include:
1. Inventory turnover
2. On-time delivery
3. Production yield
Learning and Innovation Perspective: KPI or
measures include:
1. % of staffs who have not been trained for the past 12 months
2. % of revenue from new products
3. Product mix
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65. Types of Measurements or KPIs
Measure Type Definition Example
Intermediate outcomes that predicts or
Leading Employee turnover rate
drive bottom-line performance results
Bottom-line performance results resulting
Lagging Employee satisfaction rating
from actions taken
Amount of Investments, assets, equipment,
Input Number of cashiers
labor hours, or budget dollars used
Units of a product or service rendered - a
Output Number of Value Meal orders fulfilled
measure of yield
Resulting effect (benefit) of the use or
Outcome Customer satisfaction rating
application of an output
Objective / Empirical indicators of performance Wait time
Quantitative
Subjective / Perceptions and evaluations of major Customer complaints received as a % of
Qualitative customers and stakeholders total customers served
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66. Define the elements of the program or project in a table.
WHAT and WHY
- HOW - WHO Outcomes
Resources/
Inputs Activities Outputs Customers Short-term Intermediate Long-term
Reached (Changes in Attitude) (Changes in Behavior) (Changes in Condition)
Program
outcomes
related to
factor(s)
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68. Comprehensive Model for Diagnosing Organization
A. ORGANIZATIONAL LEVEL
Inputs Design Components Outputs
Strategy
- General
Structure Culture Organization
Environment
Effectiveness
- Industry
Structure Human Technology
Resources
B. GROUP LEVEL
Inputs Design Components Outputs
Goal Clarity
Team
Task Group
- Organization Effectiveness
Structure Functioning
Design e.g., quality of
Group Group work life,
Composition Norms performance
C. INDIVIDUAL LEVEL
Inputs Design Components Outputs
Skill Variety Individual
- Organization Effectiveness
Design Task Identity Autonomy
e.g., job
- Group Design
- Personal satisfaction,
Characteristics Task Feedback personal
Significance about Results development

69. Types of Intervention
Human Process
Intervention
Structural
Intervention
Types of
Intervention Human Resource
Management Intervention
Strategic
Intervention

70. Intervention
Characteristics:
This involves the extent to which intervention
Goal Specifity goals are specific rather than broad.
This involves the degree to which the
Programmability
changes can be programmed or the extent to
which the different intervention characteristics
can be specified early in advance to enable
socialization, commitment, and reward
allocation.

71. Intervention
Characteristics:
This concerns the extent to which the change
Level of
target is the total organization, rather than a
Change Target
department or small work group.
This refers to the degree to which there is an
Internal
internal support system to guide the change
Support
process.

72. Intervention
Characteristics:
This concerns the presence of a powerful
Sponsorship
sponsor who can initiate, allocate, and
legitimize resources for the intervention.

73. The Strategic Map
Linking the 4 perspectives
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74. TRANSLATE THE STRATEGY TO
OPERATIONAL TERMS
The Strategy
Financial Perspective
 Measurement is the
"If we succeed, how will
language that gives we look to our
shareholders?”
clarity to vague
concepts. Customer Perspective
"To achieve my vision,
how must I look to my
customers?”
 Measurement is used to
communicate, not to Internal Perspective
control. "To satisfy my
customers, at which
processes must I excel?”
 Strategy can be Organization Learning
"To achieve my vision,
described as a series of how must my organization
cause and effect learn and improve?”
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relationships KPI management 74

75. Basic Scorecard Terminology
(Southwest Airlines Example)
Strategy Map
Strategic Theme: Objectives: Measures: Targets: Initiatives:
Operating Efficiency What the How success The level of Key action
Profits and strategy is or failure performance programs
Financial RONA
trying to (performance) or rate of required to
Grow achieve against improvement achieve
Fewer planes
Revenues objectives is needed targets
Attract & monitored
Customer Retain More
Customers
On-time Lowest
Service prices
Internal Objectives Measures Targets Initiatives
Fast ground • On Ground Time • 30 Minutes • Cycle time
turnaround
• Fast ground
turnaround • On-Time • 90% optimization
Departure
Learning
Ground crew
alignment
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76. Strategy Map: Capture a Cause Effect
Relationship from the Bottom Up
Stakeholder
More rapid and
Improved Returns on
accessible services
Investments
Internal Process
Economic Reduce Re-Activities Establish Web Based
Model Process thru ABC/M Self Services
& Growth
Learning
Expand Global Leadership Knowledge
Facility Reach Development Management
Investments
Facilities and IT Infrastructure
Fixed Assets Human Capital
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78. Pitfall in implementing KPIs
Some of them are ......
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79. Some pitfalls in installing KPIs
• Goals and Objectives not clearly defined
• Wrong Key Result Areas identified to
achieve the goals set.
• KPIs used are not suitable for proper
performance evaluation
• Performance targets are not achieveable
and not integrated with that of the
organisation.
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80. Organizational benefits of
performance management
• Common approach to setting goals and
reviewing performance & development
• Aligning individual plans with organizational
goals
• Ongoing dialogue between employees and
supervisors on performance & development
• Links to corporate learning & development,
career & succession planning, rewards &
recognition
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81. Integrated performance management
framework - elements & linkages
Gov’t Strategic Plan,
Ministry Plan, Branch Plan
Individual Start of year
Performance
Management
Plan
Review • Goal Setting Corporate
Outcomes Opportunities
•Recognition
Review •Career Plan
mechanisms
(e.g.informal and • Results Focus •High Potential
formal rewards and • Feedback to • Progress and •Succession Plan
recognition,
development, base develop new realignment •Learning Needs
pay, pay for
En plan g & Courses
performance do oin
fy ng
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r
Competencies

82. PMS in summary
• Define performance objectives
• Establish Key Result Areas
• Key Performance Indicators
• Performance Targets and Standards
• Performance Record Keeping
• Variance or gap analysis
• Strategic Interventions
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84. 400 INTERNAL PROCESS
INPUT PROCESS OUTPUT OUTCOME
Material variances
Labour
Overhead Efficiency Quantity Average
ratios produced cost per
transaction
Research Productivity Value ROI
dev ratios produced
expense
Inventory Average Average
turnover lead time Prodn cost
Waste Reduction
84

85. 900 HRM
INPUT PROCESS OUTPUT OUTCOME
Incentives variances Turnover ratio
Hours Efficiency No Profit per
ratios produced employee
Training Productivity Value ROI
ratios produced
Salary Average Turnover Revenue per
lead time employee
Skill Waste Reduction Employee Value added per
competenc productivity employee
y
85

86. 500 MARKETING
INPUT PROCESS OUTPUT OUTCOME
Material Response rate No of customers
Labour Marketing costs % Sales volume
Overhead Efficiency ratios Customers
Profitability
Research Productivity Product ROA marketing
dev ratios profitability
expense
Average cost per Customer Return on Sales
transaction acquisition
Inventory turnover Average lead time Customer
retention
Price rel to comp Waste Reduction Revenue growth 86

87. 400 INTERNAL PROCESS
INPUT PROCESS OUTPUT OUTCOME
Material variances
Labour
Overhead Efficiency Quantity Average
ratios produced cost per
transaction
Research Productivity Value ROI
dev ratios produced
expense
Inventory Average Average
turnover lead time Prodn cost
Waste Reduction
87

88. Arriffin KPI management 88

89. PERFORMANCE CYCLE
Business
objectives Critical
Success
Change
Factors
Performance Key Result
Actuals Areas
Strategic Performance
initiatives Indicators
Performance
standards
89
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90. Training Need Analysis (TNA)
TNA is a tool to
Existing identify the gap Required
• Skills • Skills
• Knowledge • Knowledge
• Attitudes • Attitudes
90

92. Strategy Map Framework
Long-term Shareholder
Value
Cost Efficiency Revenue Growth
Financial
Price Quality Service Availability Brand
Customer
Regulatory
Operations Customer Innovation
and Social
Management Management Processes
Processes
Processes Processes
Internal Process
Learning & Growth
Human Capital Organization Capital Information Capital

93. Strategic Objectives in Financial
Long-term
Shareholder Value
Cost Efficiency Revenue Growth
Improve Cost Structure Expand Revenue
Opportunities
Increase Asset Utilization Enhance Customer Value

94. Strategic Objectives in Customer
Customer Retention Customer Profitability
Customer Satisfaction Market Share
Customer Acquisition
Price Quality Service Availability Brand

95. Strategic Objectives in Internal Process
Operations Customer Regulatory
Innovation
Management Management and Social
Processes
Processes Processes Processes
Processes that Processes that Processes that Processes that
produce and enhance customer create new improve
deliver products value products and communities and
and services services the environment
• Supply • Selection • New Ideas • Environment
• Production • Acquisition • R&D Portfolio • Safety &
• Distribution • Retention • Design/ Health
• Growth Develop • Employment
• Launch • Community

96. Strategic Objectives in
Learning & Growth
Organization Information
Human Capital
Capital Capital
• Skills • Culture • Systems
• Knowledge • Leadership • Database
• Attitude • Organization • Networks
Development

97. Strategy Map Template
Enhance Long-term
Shareholder Value
Improve
Increase Revenue Growth
Cost Efficiency
Financial
Build High Expand Enhance
Performance Products Market Share Brand Image
Customer
Achieve Drive Demand Implement Good
Manage Dramatic
Operational through Customer Environmental
Growth through
Excellence Relation Policy
Innovation
Management
Internal Process
Learning & Growth
Develop Strategic Build Learning Expand Capabilities with
Competencies Culture Technology

98. Action Plan Format
Objective:
Action Feedback
Accountability Schedule Resources Mechanism
Steps
Primary Others Start Complete Money Time

100. THANK YOU FOR YOUR
ATTENTION
Questions please
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