Page 276 - DMGT522_SERVICES MANAGEMENT

Unit 13: Performance Measurement in Services

13.4 Key Performance Indicators Notes

Key Performance Indicators, also known as KPI or Key Success Indicators (KSI), help an
organisation define and measure progress toward organisational goals.
Once an organisation has analysed its mission, identified all its stakeholders, and defined its
goals, it needs a way to measure progress toward those goals. Key Performance Indicators are
those measurements.

13.4.1 What are Key Performance Indicators (KPI)?

Key Performance Indicators are quantifiable measurements, agreed to beforehand, that reflect
the critical success factors of an organisation. They will differ depending on the organisation.

A business may have as one of its Key Performance Indicators the percentage of its income
that comes from return customers.
A school may focus its Key Performance Indicators on graduation rates of its students.

A Customer Service Department may have as one of its Key Performance Indicators, in
line with overall company KPIs, percentage of customer calls answered in the first minute.
A Key Performance Indicator for a social service organisation might be number of clients
assisted during the year.
Whatever Key Performance Indicators are selected, they must reflect the organisation’s goals,
they must be key to its success, and they must be quantifiable (measurable). Key Performance
Indicators usually are long-term considerations. The definition of what they are and how they
are measured do not change often.
The goals for a particular Key Performance Indicator may change as the organisation’s goals
change, or as it gets closer to achieving a goal.

Key Performance Indicators Reflect the Organizational Goals

An organisation that has as one of its goals “to be the most profitable company in our industry”
will have Key Performance Indicators that measure profit and related fiscal measures. “Pre-tax
Profit” and “Shareholder Equity” will be among them. However, “Percent of Profit Contributed
to Community Causes” probably will not be one of its Key Performance Indicators. On the
other hand, a school is not concerned with making a profit, so its Key Performance Indicators
will be different. KPIs like “Graduation Rate” and “Success in Finding Employment after
Graduation”, though different, accurately reflect the schools mission and goals.

Key Performance Indicators must be Quantifiable

If a Key Performance Indicator is going to be of any value, there must be a way to accurately
define and measure it. “Generate More Repeat Customers” is useless as a KPI without some way
to distinguish between new and repeat customers. “Be The Most Popular Company” won’t work
as a KPI because there is no way to measure the company’s popularity or compare it to others.
It is also important to define the Key Performance Indicators and stay with the same definition
from year to year. For a KPI of “Increase Sales”, you need to address considerations like whether
to measure by units sold or by dollar value of sales. Will returns be deducted from sales in the
month of the sale or the month of the return? Will sales be recorded for the KPI at list price or at
the actual sales price?

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