Systematically developing sound KPIs
This article describes a practical method for BI professionals, business and information analysts, and controllers, to systematically develop proper KPIs. Our method of defining KPIs, the SMART KPI Toolbox, is well-documented and also makes them technically implementable.
One of the advantages of good business intelligence is that every user can effortlessly see the information relevant to them on the screen. Besides descriptive reports and analysis possibilities, that means relevant Key Performance Indicators (KPIs) that provide quick insight into the performance of the team, department, or segment of the business. KPIs are a part of performance management.
The foundation: the Business Intelligence Framework
Passionned Group developed the concept of the Business Intelligence Framework. The BI Framework determines for every organizational role which information they need, in what form, and at which moment in the business process. The Business Intelligence Framework is the solid foundation for the design of the Business Intelligence environment.
100% personalized dashboards
Thanks to the reusable nature of insights, new employees can have a 100% personalized dashboard with minimal effort. Thanks to the Business Intelligence Framework, the only see the relevant information for their activities and place in the organization.
Good information analysis is essential
In order to properly set up the Business Intelligence Framework, good information analysis is essential. Information analysis, in this case, means the systematic determination of every relevant organizational role, the relevant KPIs, a good presentation for these KPIs, and the right authorizations.
The method consists of five phases. In the first two phases, Process overview and Process documentation, every process in the organization is enumerated and described. Next is the Associative phase, where the results of the analysis are put to use, and the Synthesis phase, where we determine the genuine KPIs in the process. The last phase, Library, consists of putting together the basic components of the Business Intelligence Framework.
Vertical business-driven approach
There are roughly two solid methods of defining good KPIs. The first is the vertical business-driven approach (top-down: mission, strategy, and goals are the driving force). This approach works fastest in organizations where management already works with a clear policy cycle of strategies and goals. A clear and broadly applied strategy map is a requirement.
Horizontal business-driven approach
The second is the horizontal business-driven approach (bottom-up: KPIs are derived from business processes). This approach lends itself better to organizations where the BI or financial department takes the lead when rolling out KPIs. It’s typically easier to accurately describe processes than to set up a clear strategy map.
Setting up a process overview
The first step is setting up a process overview. The goal is obtaining a complete picture of every process in the organization. The most important ones are the primary processes, because this is typically where there is most to gain with good BI. But the supporting processes and administrative processes are also described. To keep the presentation of all the processes clear, they’re divided per work area. The result is a process perspective wherein every work process of the company is presented in cohesion.
Structurally document processes
In order to be able to analyze the process, it first has to be structurally documented. The following aspects are covered:
- Number, name, and goal of the process
- Employees with their tasks, authorizations, and responsibilities
- The process steps and decision moments and their underlying relationships
- The systems and administrations that are called on and wherein information is documented, per process step
- The process that affect the described process and the process that depend on the described process
The associative phase
The associative phase happens in preparation to defining KPIs. In this phase, options for indicators are defined in a brainstorm session. It’s recommended to discuss the indicators with the business, or to involve them in the brainstorming. In this phase it’s also important to be familiar with the terms (key) result indicator, (key) performance indicator, and the justification number.
Hallmarks of a Key Performance Indicator
A good Key Performance Indicator has several characteristics:
- The indicator typically isn’t financial
- If the indicator goes below a certain critical value, it can cause a chain of problems
- There has to be a consensus that action must be taken when the indicator falls under a certain value.
The synthesis phase
In this phase, the basic components for the Business Intelligence Framework are defined. Based on the previous analysis, several things should have become clear: the generic roles, the goals, the KPIs and filters, the way in which information can be tailored for end users.
Following from this, the following matters are defined: connections between the four elements above. For example: which KPI matches which goal; which generic role has to access which filters. Then, the insight is developed. In short, that means determining how the KPI can best be visualized.
Finally, the multi-dimensional model is established. This one juxtaposes the KPI value against every filter (with hierarchy) possible. Then the relevance of these insights is discussed with the business. It has to be determined whether or not these insights are the right ones, and whether or not the authorizations are correct.
Success factors of a BI implementation
Passionned Group research has shown that the three most important success factors of a BI implementation are:
- Goals and targets are regularly evaluated
- Information is regularly used for analysis and as a basis for action
- There is a culture of feedback where both positive and negative results can be discussed
Hence, it’s important to make the business aware that the outcomes of the insights have to be open to discussion in this phase. Not every department and manager is ready for this. Sometimes, change management is required.
Fifth phase: Library
The last phase consists of the following activities:
- Setting up a library of all the insights.
- Setting up a total multi-dimensional diagram. That serves as input for a gap analysis. The gap analysis is required to find out whether certain information isn’t documented yet.
- Setting up a total rights model. This can be deduced from the generic roles defined across the various processes and the connections defined. In the rights model, it is determined which roles (and which people) are offered which insights. This collection of insights comprises their dashboard.
The importance of this is that all the information is well-documented. This is, again, discussed with the users and stakeholders. It’s important to know whether or not the insights and dashboards are actually relevant for the people. And a discussion about the gap analysis will have to clarify where the priorities in unlocking the data will be.
Want to know more? Download the SMART KPI Toolbox.