United International University

Assignment On
Key Performance Indicator

Course Title: Human Resource Management

Course Code: HRM-604
Section: B

Submitted To
Prof. Dr. F. A. Sobhani
Director of MIHRM & MBA Program, SOBE
United International University

Submitted By
Kazi Rajaul Islam
Id: 112 193 040

Date of Submission: 17th December, 2019

 Introduction
For every organization it is important to understand how their business is running in order to
manage it. The management needs significant data in order to pursue their targets and take the
right decisions. Appropriate controlling methods in order to better understand running businesses
are the issues of KPI. Experiences with KPI systems showed an important development over
decades. In 1919 the DuPont-System of financial control intended to analyze the ROI. Enhanced
systems tried to sophisticate crucial quantitative factors by going more in depth. However, these
are considered as older approaches. Lachnit sees the need for sophistication and splits the KPI
systems into analyzing KPI systems and controlling KPI systems. Analyzing means in this context
to go deeper step by step to find the causing source of the KPI, whereas controlling means to
enforce the realization of a determined target. Moreover, key figures in a KPI system need to be
in either a calculating or an economically reasonable coherence.

Key Performance Indicator (KPI)

A key performance indicator is a measurable value that demonstrates how effectively a company
is achieving key business objectives. Organizations use KPI at multiple levels to evaluate their
success at reaching targets. High-level KPI may focus on the overall performance of the business,
while low-level KPI may focus on processes in departments such as sales, marketing, HR,
production, support and others.

Two important measurement

 Measurement of efficiency as well as effectiveness

 Measurement of hard and soft skill.

The operative word in KPI is key because every KPI should related to a specific business outcome
with a performance measure. KPI are often confused with business metrics. KPI need to be defined
according to critical or core business objectives. Follow these steps when defining a KPI:

 What company desired outcome?

  Why does this outcome matter?
 How to measure progress?
 How can influence the outcome?
 Who is responsible for the business outcome?
 How often we review progress towards the outcome?

For example I am head of HR. My object is to increase sales revenue within a year. So here I
define how to measure the KPI:

 To increase sales revenue by 20% within 2020.

 Achieving this target will allow the business to become profitable.
 Progress will be measured as an increase in revenue measured in TK spent.
 By hiring additional sales staff, by promoting existing customers to buy more product.
 The Chief Sales Officer is highly responsible for this matrix.
 Revenue will have increased by 20% this year.
 Will be reviewed on a monthly basis.

SMART KPI:
One way to evaluate the relevance of a performance indicator is to use the SMART criteria. The
letters are typically taken to stand for Specific, Measurable, Attainable, Relevant and Time-frame.
In other words:

 Is objective specific?
 Can measure progress towards that goal?
 Is the goal realistically attainable?
 How relevant is the goal to my organization?
 What is the time-frame for achieving this goal?

The SMART criteria can also be expanded to be SMARTER with the addition of evaluate and re-
evaluate. These steps are extremely important. For example, if I've exceeded my revenue target
for the next year, then I should determine my goal too low or if that's attributable to some other
factor.
Model of key performance indicator:

Outcomes
(how much
Process Outputs increase the
Inputs (Process qulity,
(what is the performence)
result)
(What is invested consistency and
to the KPI eficency)
process)

Types of KPI:
1. Quantitative Indicators

Quantitative indicators are the most straight-forward of KPIs. In short, they are measured solely
by a number. There are two types of quantitative indicators - continuous and discrete. Continuous
quantitative indicators can take any value over a range. Discrete quantitative measures include
things like complaints, accidents, and rating scales. Examples of quantitative measurements
include measurements of time, money and cents, and weight.

2. Qualitative Indicators

Qualitative indicators are not measured by numbers. Typically, a qualitative KPI is a characteristic
of a process or business decision. Examples of qualitative KPI include opinions, properties, and
traits. A common qualitative indicator that organizations regularly use would be an employee
satisfaction survey. While some of the survey data would be considered quantitative, the measures
themselves are based on the opinion of a person. Qualitative focuses more on the why as opposed
to the how.
 3. Leading Indicators

Leading indicators are used to predict the outcome of a change in a process and confirm long-term
trends in data.

4. Lagging indicators

Lagging indicators are used to measure results at the end of a time period to reflect upon the success
or failure of an initiative. Often, they are used to gauge historical performance. Some examples of
lagging indicators include total customer contacts or total incidents. Lagging indicators give
businesses the ability to evaluate the effectiveness of their business decisions and determine
whether their business decisions facilitated the desired outcome.

5. Input Indicators

Input indicators are used to measure resources used during a business process. Some examples of
input indicators include staff time, cash on hand, or equipment. Input indicators are necessary for
tracking resource efficiency in large projects with a lot of moving parts, but are also useful in
projects of all sizes.

6. Process Indicators

Process indicators are used specifically to gauge the efficiency of a process and facilitate helpful
changes. A very common process indicator for support teams are KPI focused around customer
support tickets. Tickets resolved, tickets opened, and average resolution times are all process
indicators that shed light on the customer support process. In this example, that data can be used
to influence changes in the support process to improve performance.

7. Output Indicators

Output indicators measure the success or failure of a process or business activity. Output indicators
are one of the most used KPI-types. Examples of output KPIs include revenues, profits, or new
customers acquired.
 8. Practical Indicators

Practical indicators take into account existing company processes and explore the effects of those
processes on the company. For this reason, many practical indicators may be unique to your
company or work processes.

9. Directional Indicators

Directional indicators evaluate specific trends within a company. Where are the metrics moving?
Are they improving, declining, or maintaining? An example of a directional metric used by many
service providers would be Time on Site. This metric is used to measure the time that techs spend
on-site fixing issues and troubleshooting problems. Ideally, most companies would like to lower
their average Time on Site, as it is indicative of a faster, more effective service. Broad directional
indicators can be used to evaluate any company’s position within industry relative to competitors.

10. Actionable Indicators

Actionable indicators measure and reflect a company’s commitment and effectiveness in

implementing business changes. Those changes could be within business processes, company
culture, or political action. These metrics are used to determine how well a company is able to
enact their desired changes within specified time-frames.

11. Financial Indicators

Financial indicators are the measurement of economic stability, growth, and business viability.
Some of the most common financial KPIs include gross profit margin, net profit, aging accounts
receivable and asset ratios.

Criteria of developing KPI

First of all need to consider how that KPI relates to a specific business outcome or objective. KPI
need to be customized to organization business situation and should be developed to help to
achieve goals. Following steps to developing a KPI:
Clear objective:

A clear objective for KPI is one of the most important. A KPI needs to be intimately connected
with a key business objective. Not just a business objective, or something that someone in
organization might happen to think is important. It needs to be integral to the organization’s
success.

The key takeaway is this KPIs need to be more than just arbitrary numbers. Need to express
something strategic about what organization is trying to do. Without writing out a clear objective,
all of this will be lost.

Review the KPI on a weekly or monthly basis:

Checking KPIs regularly is essential for maintenance and development. Obviously tracking
organization progress against the KPI is important. But equally essential is tracking organization
progress so organization can assess how successful developing the KPI in the first place.

Not all KPI are successful. Some have objectives that are unachievable. Some fail to track the
underlying business goal supposed to achieve. Only by checking in regularly can decide if it’s time
to change KPI.

Make sure the KPI is actionable:

KPIs actionable is a five-step process:

 Review business objectives

 Analyze organization current performance
 Set short and long term KPI targets
 Review targets with team
 Review progress and readjust

But it’s worth focusing on the need to develop targets for both the short- and long-term. Once have
set a goal with a timeline that’s farther into the future that can work backwards and identify the
milestones to hit on the way there.
Let’s say, for example, I want to sign up 1,500 newsletter subscribers in the first quarter of the
year. I will want to set monthly or even weekly targets to get there. That way I’ll be able to
continually reassess and change course as needed on my way to achieving the longer-term goal.

I could divide the targets up equally according to each month. In this case that would be 500
subscriptions in January, 500 in February and 500 in March. However I may want to get more
specific. There are more days in January and March than February, so maybe I want to set a target
of 600 for those months. Or maybe I typically get more website traffic in February so I decide to
set a target of 800 in that month.

Whatever it is, make sure I break up my KPI targets to set short-term goals.

KPI need to fit the changing needs of the business:

KPI that never get updated can quickly become obsolete. Let’s say, for example, that a organization
recently started a new product line or expanded overseas. If the company don’t update KPI,
Organization team will continue to chase targets that don’t necessarily capture the change in
tactical or strategic direction. KPI maker may think, based on results,that are continuing to perform
at a high level. In reality, though, KPI may be tracking but fail to capture the impact on efforts are
having on underlying strategic goals.

So need to review KPI on a monthly basis that will give a chance to fine tune or change course
entirely. Organization might even find new and possibly more efficient ways of getting to the same
destination.

Check to see that the KPI is attainable:

Setting achievable targets for an organization is essential. A target that’s too high risks giving up
even before start KPI. Set a target too low and find quickly how much can attain and how much
work can include.

An analysis of performance is essential. Current performance is also a good starting place for
deciding on areas upon which part need to improve.
Update KPI objectives as needed:

KPIs aren’t static. Organization always need to evolve, update and change as needed. If org setting
and forgetting KPIs and risk chasing objectives that are no longer relevant to business.

Make a habit of regularly checking in not just to see how are performing against KPIs, but on
which KPIs need to be changed or scrapped completely. To someone who’s never developed a
KPI before, all of this might sound exhausting. But here’s the good news is once organization have
gone through this process a few times, it’ll be that much easier to use it again in the future.

Sample of KPI template:

10 criterion to consider when designing key performance measures

Consider this list of criteria when building out key business performance measurement systems:

 Be based on quantities that can be influenced, or controlled, by the user alone or in

cooperation with others
 Be objective and not based on opinion
 Be derived from strategy and focus on improvement
 Be clearly defined and simple to understand
 Be relevant with an explicit purpose
 Be consistent
 Be specific and relate to specific goals or targets
 Be precise and exact about what is being measured
 Provide timely and accurate feedback
 Reflect the business process

Key Steps of KPI process:

Evaluate Change Assess

Identify Create
A set of Dashboards How well Strategies Wheather
relevant or scorecads business and the KPIs still
KPIs to to measure goals are processes as align with
track for a and display being met needed to goals and
company or KPI results. based on the improve adjust them
business KPIs. performance if needed.
unit. .
There are three challenges:
1. Problems with data: KPIs typically require pulling data together from numerous sources.
Often, data exists in silos across the organization and data must be retrieved from multiple
systems. Creating KPIs may require IT’s involvement. Often resulting in longer lead times
and higher costs. IT must integrate systems, review definitions and verify data quality.
2. Problems with consistency: Consistency is important when using KPIs. Everyone across
the organization must measure the same items in the same way; otherwise, the dialogue
centers on the validity of the data rather than what it means.
3. Problems with tools: A number of tools on the market are designed to help with KPI
creation like IBM, MicroStrategy, Teradata, Analytics etc. but most of the company use
excel. But about 90% of spreadsheets contain errors.

Advantage of KPI
Measurable Results: As the sole purpose of KPI is to track progress, it displays accurate results
in the form of numbers, metrics, or statistics. The employee, team, or organization can easily
measure or track the progress of their goal and understand which part of the task needs more focus.
Also, KPI gives daily, weekly, or periodical results according to the requirements or type of the
goal.

Alignment: For a big organization that has a large number of employees, it may get difficult to
keep track of each progress. In such a case, KPI helps everyone stay aligned to the goal as it makes
the results accessible to everyone involved in the project.

This helps everyone stay motivated as no one would like to see their names or progress marked
red. Additionally, it ensures everyone works in the same direction.

Future strategies: Tracking the progress through KPIs can help the managers redesign or modify
their strategies based on the previous goal performance. As KPIs help the organization understand
everyone’s capability, performance index, and productivity, it makes them plan or set future goals.
Rewards: Any employee aims to work hard and better towards receiving a hike or bonuses for
their hard work. With KPIs, each person gets a chance to prove themselves as well as help the
managers see the progress and reward accordingly. In addition to that, it helps employees to track
their performance and improve themselves.

Disadvantages of KPI:
Decrease in Quality: With the prime focus on getting results for short-term goals, there is a good
chance of employees losing focus on the quality of the work. Due to the setting of financial goals,
there is a tendency for metrics gaining more weight rather than the authenticity of the task.

Short-term Oriented: KPIs are useful for attaining short-term goals but may prove to be equally
disadvantageous in the case of achieving long-term goals. There are a lot of sources to measure
success in a single area cannot be acceptable.

Standardization: As the goals are more result-oriented, there may be a chance of a decrease in
the level of creativity of the employees. They become more aligned with their traditional work
methods as that helps those complete tasks quicker. As a result, it discourages employees to
implement or consider innovative approaches.

Loyalty: Since KPIs only show the progress levels, it gets difficult to track the quality of the work
and in return might affect the loyalty that is there between the organization and the client. As a
result, the organization may lose them and weaken the bond between them.

To conclude, KPIs are very useful for short-term goals whereas; it may not prove to be as valuable
for long-term goals. It is essential to consider all the factors before considering a KPI for the
organization.
Reference:

 http://www.evolvedmedia.com/wp-content/uploads/2016/03/CITO-Research_Qlik_3-
KPI-Challenges-and-How-to-Overcome-Them_White-Paper_2015.pdf
 https://www.klipfolio.com/resources/articles/what-is-a-key-performance-indicator
 https://www.brightgauge.com/blog/quick-guide-to-11-types-of-kpis
 https://kpi.org/KPI-Basics/Articles-and-Videos/Article-
Details/ArtMID/5508/ArticleID/1098/Types-of-KPIs
 https://kpi.org/KPI-Basics
 https://www.optimizesmart.com/understanding-key-performance-indicators-kpis-just-
like-that/