How to Measure Business Performance in Two simple Steps
To create business performance dashboard you can read a lot of books, text and articles about performance, KPIs and dashboards but none of them presents a complete example from conception to implementation. Moreover the approach is usually “cascade”: good for large, corporate project but not enough agile for departmental and medium business realities.
Here is a hypothetic but realistic small case that illustrates an agile process to build performance dashboards. In this post you will see how to identify and define the performance measures. In next post you will see how to create a web-enabled interactive dashboard. The only technical skill you need is to be able to work with a spreadsheet.
The “Tower of Pizza” takes its name from the famous leaning tower and is a small network of pizza shops (7 stores) known for the quality of their pizza and their exceptional fast serving: its slogan reads Quality Pizza at Bullet Speed. Tony Dimarcio (the owner of the chain) heard about Performance Measurement and KPI in one of “family” board he usually participates.
Highly motivated with the idea, he hired you ? a management consultant ? to build a performance measurement dashboard. Tony would like to give a more professional and dynamic image to family business that exists since 1922 (“Black Vendetta” was Al Capone preferred dressing). Tony expects from your services the same speed he provides for his pizza. Capice?
You immediately cash the usual 30% down payment and promise you would deliver almost immediate results. Tony points he is absolutely sure of that and refresh your mind about “family” policies. You promise that after a first meeting with Tower of Pizza key managers you will deliver a detailed report of the performance measures they need.
The day after you are at the meeting with Tony and 4 managers of largest stores. Having read one of my first posts you know that there are two broad categories of performance: efficiency and effectiveness.
You decide to consider efficiency first.
Identify Efficiency KPIs
You shall remember that efficiency measures process output against inputs. But what are main inputs and outputs of the process? Here is my recommended list of questions for your client:
Which are main product of your process?
How do you usually measure it?
Which are your more scarce resources?
Which are your most expensive resources?
Which are the resources that require your constant attention?
What would you like to dispose with no limit whenever needed?
How do you measure those resources.
You shall think in terms of very generic resources. Resources are usually people, machines, assets, time and money.
In the case of Tower of Pizza, main
product is pizza Pizza measured in units (surprised?), but also
complements like appetizers, drinks and desserts. So a second measure
is money. Using the above questionnaire you also identified two key
The number of seats available at store determines store capacity.
The number of employees at store also determines store capacity.
So you proposed two efficiency measures that are immediately accepted: Pizzas per Available Seat and Sales per Employee.
You decide to immediately describe them: nobody can implement a KPI based solely on its name!
Measure name - Simple!
Unit - You asked managers right? Now the unit of ratios is expressed as a ratio too, like “units/seat”.
Objective - Each KPI shall be bound to an objective (by the way another approach could have been starting from objectives). Entering an objective here will allow KPIStudio to show all KPIs that support a certain objective.
Categories - In addition to “KPI” (to indicate the measure is a key performance indicator), you decide to enter a perspective into which the measure will be shown. The dashboard will support multiple perspectives (you decided to use my post suggestion).
Classification / Dimensions - All KPIs (in this case) will be available at store level, so you enter “Store”.
Description - why is this KPI important?
Audience - who will be interested about this KPI? Only Operations for first KPI, Operations and Human Resources for the second one.
Computation - How is this KPI measured? Note that you refer to other measures between square braces. You do not need to enter a row for those because they are not KPIs, but KPIStudio will issue a warning. Why? In a real case you, or IT should document all measures including intermediate computations and identify the actual source field(s).
Interpretation - How shall Tony understand variation and trend? Here again an important point: remember to refer to other KPIs by enclosing into square braces.
Minimum and Maximum values - Ideally a seat will sell at least 6 pizzas per day, if this ratio goes under 3 immediate action is required.
And finally an example for Tony really understanding.
Identify effectiveness KPIs
Now you consider effectiveness. Effectiveness measures how well we perform in terms of expected results. But who defines expected results? Stakeholders! And who are stakeholders? Usually:
Shareholders. What shareholders (or owners) expect in terms of profitability and growth?
Clients. What matters to clients in terms of quality, cost, time and flexibility? How to measure them?
Managers. Which goals do they have in mind? How shall those goals be measured?
Distributors, partners (possibly suppliers)
Regulators, the society and community (do not even dare to ask Tony about them)
As a owner, Tony is extremely concerned about ingredients costs and pizza price, so you immediately add a new KPI to the list: margin will measure relative profit over sales amount (considering direct costs only).
Tony also says (and everybody agrees) that it is very important to deliver a pizza within 5 minutes from order. There can be exceptions but they shall be absolutely rare. So another KPI is identified: late serving rate, that is the relative number of orders served in more than 5 minutes and that - in Tony mid - shall not pass 1%.
Finally you are introduced to an original way yo measure user satisfaction: at each exit door there is a table with a pot full of ammo bullets and two labeled holes that read: “100% satisfied”, “not 100% satisfied”. Customers can express their satisfaction by taking a bullet from the pot and drop it into either hole (that lead it to distinct pockets). This simple device was invented by Tony's “nonno” (grandpa) to recycle used bullets. Satisfaction level can be someway rudimentary (only two choices) but this is the way the “family” usually looks at the world (good/bad, black/white, friend/enemy).
Tony further says that he believes that satisfied customers would not usually spend time to “vote”. “What really counts is the number of unsatisfied customers considering total customer count”.
This generates a discussion: somebody thinks that you shall consider the number of votes, and somebody else thinks that the denominator shall be the number of clients.
Diverging opinions are common situation when defining performance measures, the best strategy is to make annotate the pending points and ask for a later decision. This is exactly what you do: define Claim Incidence measure and enter into description (or other fields) a phrase concluded with double question mark: shall we divide by voters or client count?? As you will see KPIStudio will take care of the rest.
Your meeting concludes with 6 identified KPIs that you defined in your spreadsheet shown here. You are invited to a pizza for lunch and promise the detailed report in the afternoon.
Aha! You remember that KPIStudio is a free application that will help you produce that report, so you either visit its page and you start it, or simply directly your browser at this address (bookmark it if you frequently use).
You can then immediately produce the report:
Choose File > Open
Select the file that contains your KPIS (for example “tower-of-pizza.xls”)
Choose Actions > Generate Measures Documentation
KPIStudio shows the name of the generated file (PDF format)
Open it with your PDF reader (usually double click on that file)
Here is the report ready to be sent to Tony:
Let's take a quick look at it:
The cover clearly identifies project scope and your company (Strategic Performance Consulting) as author. As a CBS partner, you can even insert your company logo and address on each page! (partnership is free).
Open issues: immediately point any issue awaiting resolution, just one in your case. This is very handy since in actual projects have usually many pending issues. Click on the issue to jump to it (hyper-link).
Strategic Objectives: relate each objective to the the KPIs needed to track it.
Measure Categories. You make a note to Tony to pay special attention to non-KPI measures (section 3.3). Those are the measures whose values IT department is expected to provide. KPIStudio let you clearly identify which data from IT you will need!
Classification. In the case of Torre di Pizza we already know that all measures will be available for each store. More complex systems can use multiple dimensions applicable to certain subset of measures. Again an information indispensable to IT staff, automatically produced by KPIStudio.
Audiences: let you will quickly find the information that each manager will receive.
Measures are listed in alphabetic order and cross-referenced in full detail. You can click on hyper-links (measure, groups, references ...) to navigate with ease inside the document.
The challenge is great and the alternative could be as easy as a one-way ticket to Mexico City. But you decide to make a bet and keep reading this blog: you heard about a free and immediate performance on the way...
Take a look at step 2 (the dashboard)
Last modified on 2011-05-24 by Administrator