Thursday, June 19, 2008

Key Perfrormance Indicators: Developing, Implementing, and Using Winning KPIs

David Gerbino had been kind enough to provide feedback to the blog entry I made on business measurement standards and KPIs. He recommended two books, one of them, Key Performance Indicators by David Parmenter, is already in my personal library.

Parmenter, a consultant who assists organizations in applying KPIs, lays out basic strategy for selecting and applying KPIs in an organization. The book is a reasonably good resource for someone starting to consider systematically applying a measurement strategy across an organization. It is also a valuable resource for someone who has a grasp of measurement systems but is interested in seeing some specific examples.

I was pleased to see that he spends some time trying to explain the difference between key performance indicators (KPIs), performance indicators (PIs) and key results indicators (KRIs). While I use different definitions than Parmenter, I must confess that I had been working with measurements for a few years before I recognized the importance of explicitly differentiating a metric, a measurement, and a key performance indicator.

Parmenter points out:

Performance measures are meaningless unless they are linked to the organization's current CSFs [critical success factors], the balanced scorecard (BSC) perspectives, and the organization's strategic objectives.
I found Parmenter's recommendations for choosing KPIs, gaining consensus, and implementing to be less helpful but, they will certainly provide ideas and cautions. In the years I have worked with large multi-national corporations, I never encountered a KPI team. The business measurement or benchmarking "teams" that I worked with or met were project teams supporting specific business objectives.

One of the most important resources in the book for me is the Performance Measures Database contained in the Appendix. The table provide a fairly extensive list of metrics to consider and suggests a possible relationship between a Balanced Scorecard perspective and strategic objectives. It is helpful (but not necessary) if you are familiar with Kaplan and Norton's Balanced Scorecard. The database is a subset of the Waymark Database of Performance Measures (proprietary to Parmenter's firm) which apparently can be purchased for a fee from their website.
In summary, Key Performance Indicators is a good reference for anyone who needs to use KPIs. If you were going to assemble a measurement team, assign a KPI executive or manager, or hire a consultant to design, implement and use KPIs, you might want to read this book first.

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