Scorecard and KPIs 101

SCORECARD AND KPIS 101

Based on www.bscdesigner.com/scorecard-and-kpis-101.htmBy Aleksey Savkin, bscdesigner.com

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NOT ALL INDICATORS ARE KPIS

• It doesn’t make sense to call something “KPI” until a business context is defined.

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• But I’ll be using the “KPI” term as it is more popularized.

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• But I’ll be using the “KPI” term as it is more popularized.

• These aspects were discussed before… in the guide “from quantification to a metric”

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WHAT PROBLEMS ARE KPIS AND A SCORECARD SUPPOSED TO SOLVE?

• Indicators are numerical values that are linked to some kind of process.

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• Indicators are numerical values that are linked to some kind of process.

• Their primary goal is to show a number that can give us an idea about the current performance.

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ON INDICATOR LEVEL:

• Show the current value.

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ON INDICATOR LEVEL:

• Show the current value.• Introduce the performance function

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ON INDICATOR LEVEL:

• Show the current value.• Introduce the performance function• Interpret the value of an indicator on a

baseline/target scale.

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ON SCORECARD LEVEL:

• Group indicators into categories.

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ON SCORECARD LEVEL:

• Group indicators into categories. • Specify the relevant importance.

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ON SCORECARD LEVEL:

• Group indicators into categories. • Specify the relevant importance.• Calculate the performance of category.

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ON SCORECARD LEVEL:

• Group indicators into categories. • Specify the relevant importance.• Calculate the performance of category.• Calculate the total performance.

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INDICATOR LEVEL

THE VALUE OF AN INDICATOR

530 $

20 hours/week

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530 $

20 hours/weekNumeric value

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530 $

20 hours/weekNumeric value Measure unit

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THE ROLE OF THE PERFORMANCE FUNCTION

• What the value “530$” means?

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• What the value “530$” means?

• Is it a high or low?

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• We need a measurement scale !

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We need a measurement scale !

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VALUE

TIME


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VALUE

TIME

MaxMax – means the maximal possible value of an indicator


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VALUE

TIME

MaxMax – means the maximal possible value of an indicator

Min Min – means the minimal possible value of an indicator


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VALUE

TIME

Max

Min


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THE PERFORMANCE OF AN INDICATOR CAN BE CALCULATED AS

Performance (Value), % = x 100%(Value – Min)

(Max – Min)

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In our example:

Value = 530Min = 0Max = 600


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Performance (Value), % = x 100%

= 88%

(530– 0)

(600 – 0)

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The performance function of KPI

Source: www.bscdesigner.com

Performance (Value), % = ((Value – Min) / (Max – Min)) * 100%

With a linear growth of the “value” the performance will also grow linearly

THE PERFORMANCE FUNCTION IS NOT ALWAYS LINEAR

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• For example, the performance might grow very slowly in the beginning, but then increase rapidly

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Performance (Value), % = Power(Value,10) / Power(Max, 10)

The performance might grow very slowly in the beginning, but then increase rapidly.

Performance (Value), % = x 100%Power (Value,10)

Power (Max, 10)


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WITH THE INCREASE OF THE VALUE THE PERFORMANCE MIGHT BE

DECREASING

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DECREASING

• For example, the more waiting time there is in the support center, the lower is its performance.

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Performance (Value), % = ((Max – Value) / (Max – Min)) * 100%

With the increase of the value the performance might be decreasing as well.

Performance (Value), % = x 100%(Max – Value)

(Max – Min)


DECREASING

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CALCULATING THE PROGRESS

• Sometimes it is necessary to focus attention on a very specific part of the performance interval.

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VALUE

TIME

Max

Min


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VALUE

TIME

Max

Min


Planning horizonHistorical

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VALUE

TIME

Max

Min



values

Baseline

Target

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VALUE

TIME

Max

Min



values

Baseline

Target

“Min” and “Max” are used to calculate the performance of

the KPI.

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VALUE

TIME

Max

Min



values

Baseline

Target

“Min” and “Max” are used to calculate the performance of

the KPI.

The performance answers the question: “What is the overall performance of the

KPI?”

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VALUE

TIME

Max

Min



values

Baseline

Target“Baseline” and “Target” are used to calculate the progress.

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VALUE

TIME

Max

Min



values

Baseline

Target

“Baseline” and “Target” are used to calculate the progress.

The progress answers the question: “To what extent was the target achieved?”

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THIS MIGHT SOUND A LITTLE BIT COMPLICATED TO DO…

• This might sound a little bit complicated to do if you use MS Excel or similar software

• A professional scorecard software, like BSC Designer will automate these tasks for you.

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SCORECARD LEVEL

THE RELEVANT IMPORTANCE OF KPIS

A support center has two KPIs:

– “Average email response time,” hours

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– “Average email response time,” hours– “First contact resolution rate,” %

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What KPI is more important?

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• A company can make ”Average email response time” equal to 10 minutes,

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• But this will not make customers happy, as the “First contact resolution rate” will be very low.

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• But this will not make customers happy, as the “First contact resolution rate” will be very low.

• Good response time is important, but what is more important is the high quality of the answers.


• To reflect this idea we need a concept of “weight” :


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– “Average email response time,” hours; weight = 4– “First contact resolution rate,” %; weight = 6

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– “Average email response time,” hours; weight = 4– “First contact resolution rate,” %; weight = 6

Now we know that “First contact resolution rate” is more important than “Average email response

time.”

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CALCULATING THE TOTAL PERFORMANCE

• The performance of a category can be calculated by taking in account the performance values of each indicator and their weights.

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• Here we have the structure of the scorecard C1..4 – are categories. Metric-i,j are indicators together with their weight and performance values:

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• Let’s convert this into a different notation:

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• We had our weight on a scale 1..10, so before moving ahead we need to calculate a normalized weight:

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• The total performance value for the selected category is be calculated as:

Where: – Ni is the number of metrics on i-level;

– NWi,j – is a normalized weight of j-metric on i-level;

– NSi,j – is a performance of j-metric on i-level.BSC DESIGNER




• The final formula for the total performance index of the scorecard will be:

Where M is a number of categories.

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• These calculations are simple if you don’t have subcategories in your scorecard.

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• If you had subcategories, the weight of these subcategories should be taken into account in a similar way.

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• If you had subcategories, the weight of these subcategories should be taken into account in a similar way.

• Professional scorecard software like BSC Designer will automate these calculations so that you can focus on the business side.

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• Professional scorecard software like BSC Designer will automate these calculations so that you can focus on the business side.

MORE ABOUT THE BALANCED SCORECARD

Find more insightful articles about the Balanced Scorecard in ”Articles” section at www.bscdesigner.com

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http://www.bscdesigner.com/balanced-scorecard-articles.htm



THANK YOU!

Feel free to send us your questions using the contact form at www.bscdesigner.com

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Scorecard and KPIs 101