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How to build a KPI template (part 1)

Posted by Rick Yvanovich on

In the last post, we have touched on KPI definition and examples , now we will show you how to design a KPI template.

Strategy map

Effective Key Performance Indicators are those that link directly to corporate strategies. Nowadays, many top performing companies have employed tools such as Strategy map or Value creation map to effectively map out a course of actions that help achieve the value proposition (output deliverables).

Figure 1 below shows how a strategy map can help organisations identify KPIs:

Level 1

Value proposition (Operational excellence/Product leadership/Customer intimacy)

Level 2

Financial strategies

Customer strategies

Internal perspective strategies

Learning and growth strategies

Level 3

Revenue growth

Retaining/adding customers

Internal process efficiency

Human capital

Productivity

Increasing revenue per customer

Innovative processes

Information capital

Asset utilisation

Reducing cost per customer

Customer management processes

Organisational capital

Level 4

KPI

KPI

KPI

KPI

Depending on the value proposition, each company can determine which level 3 item (value driver) is more important than the others. For instance, a company following an operational excellence value proposition must make internal operations a very high priority, therefore emphasising “Internal process efficiency” and having more KPIs for that aspect.

kpi template

Key Performance Questions (KPQs)

In order to narrow the list of metrics down to the most meaningful and relevant ones, articulating KPQs is the solution. If there is no question that needs to be answered, there is no need for measurement.

Here are some tips when formulating KPQs:

  • Keep them relevant to your business

Many companies make the mistake of replicating KPQs and ultimately KPIs from those of others. However, each business is unique and it is crucial to identify what matter the most in line with your corporate objectives.

  • Engage as many people as possible

By allowing employees as well as external stakeholders to have their inputs, organisations can ensure relevance and consistency. After all, KPQs and KPIs serve to steer people to the same direction, thus, the more people who understand and agree with the questions, the better.

  • Keep KPQs precise

For each value driver, there should be between one and three KPQs to avoid aimless measurement. The question itself needs to be short, clear and jargon-free.

  • Use open questions

Since KPQs provide the context for KPIs to answer, they should be formulated as open questions to trigger reflection, explanation and discussion. Sometimes people forget the purpose of measurement is to ultimately improve business performance. Hence, yes/no answers are not good enough.

  • Focus on the present and future

KPQs should direct us towards the future so as to trigger improvement. It would be a dead end to ask questions such as “Have we done XYZ?” Instead, it should be questions such as “How well are we doing XYZ?”

  • Refine KPQs through usage

Once KPQs are created, their answers could be used to evaluate the effectiveness of KPIs, in terms of answering those questions and helping people make better decisions. Organisations can always fine-tune KPQs to ensure relevance over time.

***

In our next blog article, we will go over the remaining steps in a KPI template. This is the third article in our series of 5 on KPIs.

Click to read the previous articles:

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Topics: Enterprise Performance Management (EPM)

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 Rick Yvanovich
 /Founder & CEO/

With TRG International Blogs, it is our mission to be your preferred partner providing solutions that work and we will make sure to guide your business to greatness every day.

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