Now that you have completed the initial stage of building a KPI template , it is time to evaluate their validity or ask the question “How well are they measuring performance?” You should also determine the methods of KPI reporting.
For financial performance, usually the level of confidence is high because of established measurement tools. For more intangible aspects, perhaps the level of confidence is not so high. Therefore, it is useful to note down any comments or suggestions. There should also be an expiry date for each KPI, which marks the date for revision.
Another evaluation criterion is the cost-benefit test. Some indicators can be expensive to measure to ensure their validity and relevance, e.g. administrative, outsourcing, analysis and reporting costs.
Sometimes, employees get the wrong impressions about KPIs. Hence, KPI designers need to reflect on potential ways performance indicators can trigger wrong and dishonest behaviours, thereby taking appropriate measures to minimise them.
Here are some common dysfunctional behaviours and how to overcome them:
- Over-emphasising quantitative data
This may lead to an omission of valid qualitative data altogether. The solution is to incorporate qualitative data into the performance measurement system and remind people that there is more to it behind the numbers.
- Hitting targets but missing the point
This signifies a wrong focus on KPIs instead of strategic objectives, which could eventually lead to a lack of strategic direction. The inclusion of mission statement and strategic objectives into performance tracking systems/reports, as well as in KPI review sessions should help remind people of the bigger picture focus.
- Data manipulation
Non-financial data may be skewed and therefore represent an inaccurate picture of actual performance. To prevent anomalies going unnoticed, there should be a strong understanding of operational activities and statistics.
- Data incongruence
KPIs for each Balanced Scorecard perspective may not point towards the same value proposition. In this case, a more holistic approach is required as well as coordination from different KPI owners to ensure consistency with the overall strategy.
This is the final step where KPI designers determine the way KPIs are communicated, whether internally or externally.
- Audience and access
It is important to identify beforehand who will receive KPI information and categorise them to allocate access accordingly. Primary audience: people who are directly involved in managing and making decisions based on the KPI given. Secondary audience: people in other departments who may benefit from knowing the data. Tertiary audience are external stakeholders.
- KPI reporting frequency
Depending on the purpose of KPIs to each audience group, they are reported at different frequencies. For instance, if a KPI is to serve a decision making purpose, it should be provided more often, whereas if it is to be included in an annual report, it only needs to be communicated once.
- KPI reporting channels
These are outlets that are used to communicate KPIs. For example, monthly performance report, organisational internal newsletter, corporate website, quarterly report to stakeholders etc.
- KPI reporting formats
These are ways to present performance: numerical, graphical and narrative. Usually, to achieve maximum effectivess, you can mix different formats together. Visual presentation tends to make information easier to understand and digest, e.g. charts, graphs, traffic lights, speedometer dials.
This is the last blog article of our series of 5 on KPIs. We have compiled everything into a full white paper for your reference. Also included are KPI design template and KPQ examples. Get it now!