1. Key Performance Measures
Arriffin Mansor

2. Contents
• Definition of Key Performance Indicators
• Purpose of KPI
• Value Chain
• Types of KPIs
– Lead and lag indicators
– Drivers and outcome

3. Purposes of performance
measurement:
To identify whether we are meeting customer requirements
To help use understand our processes
To ensure decisions are based on facts, not on emotion
To show where improvements need to be made
To show if improvements actually happened
To identify whether our contractors or suppliers are meeting
our requirements
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4. Types of Measures
• Input indicators
• Process Indicators
• Output indicators
• Outcome indicators
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5. Characteristics of good Key
Performance Indicators
• Meaningful
• Measurable
• Quantitative or qualitative
• Routinely collected
• Comparable - for benchmarking
• Useful
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6. Drivers and Outcome
• KPIs are recorded along the value chain
• KPIs at the higher levels are the drivers or
causes
• KPIs at the lower levels are outcome indicators
which indicates whether objectives are being
met.
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7. Indicators of Performance
 Measurable factors, falling logically within a given key result area, on which
objectives may be set.
 May be hard numbers, percentages, significant achievements, or problems to
be overcome.
 Identify what will be measured, not how much or in which direction.
 Represent factors that can be measured on an ongoing basis.
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8. Example Indicators of Performance
Key Results Areas Indicators of Performance
• Return/ Profit • Return on Revenue
Donations to Sales Ratio
Net profit
• Productivity • $ sales per employee
Units produced/month
• People development • Percent ethnic hire
Days of training/employee
• Market penetration • Percent of market share
Percent growth by product
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9. Examples of Key Performance Indicators
Key Results Areas Key Performance Indicators
Return/profit Return on investment
Percentage of return on sales
Net profit before taxes (dollars)
Percentage of gross margin (by product line)
Productivity Dollars of sales per employee
Units per month (by product line)
Output per work-hour
Output per employee
Overtime as percentage of payroll
Downtime
Turnaround time
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10. Examples of Key Performance
Indicators (2)
Key Results Areas Key Performance Indicators
Employee development Training investment as percentage of sales
Number of employees on degree plan
Cross-training plan
Number of backups per position
Number of employees with implemented
development plan
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11. Examples of Key Performance
Indicators (3)
Key Results Areas Key Performance Indicators
Quality assurance Percentage of first-time acceptance
Yield
Cost of rework, scrap
Percentage of error-free completions
(per shift, per employee)
Percentage of recidivism (in law
enforcement)
Cross-functional Percentage of on-time completions
Integration Number of unresolved conflicts
Average lead time on support
requests
Specific joint project agreements
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12. Examples of Key Performance Indicators (4)
Examples of Key Performance Indicators (continued)
Key Results Areas Key Performance Indicators
Research and Number of new product ideas
approved for
development development
Projected dollar value of approved
product ideas
Number of new applications for
current products/services
Cost of R&D investment: ratio to
total budget
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13. Examples of Key Performance
Indicators (5)
Examples of Key Performance Indicators (continued)
Key Results Areas Key Performance Indicators
Organizational Favorable mentions in media
Image Public information programs
Involvement in community
Interorganizational cooperative efforts
Legislative relations Response time to legislators
Inquiries handled favorably
Funding approved
Major programs approved
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14. Measurement Basics
A quick and basic understanding of different aspects of measurement.
Measurement Form Advantage Disadvantage
Numbers Simple and easy to understand Only as good as the strategic objective
Index Allows combining several measurements Hard to understand what is happening
Percentages Good measure for time span May be not be used correctly
Ratings Good measure for qualitative information Can be subjective on how it was derived
Ratios Measures critical relationships May require additional analysis to reach conclusion
Rankings Close gaps for top ranked companies Not appropriate for lower ranked companies
Measurement Type Advantage Disadvantage
Outcomes Objective and easy to capture Focused on past, not current
Drivers Predictive and leading the organization Difficult to derive and support
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15. Drivers and Causes
•Pricing 5%
•Costs Profit 10% 20%
•Expenses Margin Return on Return on
•Product Mix Assets Equity
(leverage)
•Inventory & Receivable Asset
Management Turnover
•Fixed Asset 2.0
Management
Arriffin Corporate performance management 15

16. Return on Assets (ROA)
KPI
Asset ROA
Profit
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17. The ROA based performance plan
Assets ROA
Resources
Profit
Performance Target
© Arriffin 2009 17

18. 100 FINANCIAL
INPUT PROCESS OUTPUT OUTCOME
Material variances
Labour
Overhead Efficiency Quantity Average cost
ratios produced per
transaction
Research Productivity Value ROI
dev expense ratios produced
Inventory Average RETURN ON
turnover lead time EQUITY
Waste Reduction
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19. 500 MARKETING
INPUT PROCESS OUTPUT OUTCOME
Material Response rate No of customers
Labour Marketing costs % Sales volume
Overhead Efficiency ratios Customers
Profitability
Research Productivity Product ROA marketing
dev expense ratios profitability
Average cost per Customer Return on Sales
transaction acquisition
Inventory turnover Average lead time Customer retention
Price rel to comp Waste Reduction Revenue growth
Delivery Channel 19

20. 400 INTERNAL PROCESS
INPUT PROCESS OUTPUT OUTCOME
Material variances
Labour
Overhead Efficiency Quantity Average cost
ratios produced per
transaction
Research Productivity Value ROI
dev expense ratios produced
Inventory Average Average
turnover lead time Prodn cost
Waste Reduction
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21. 900 HRM
INPUT PROCESS OUTPUT OUTCOME
Incentives variances Turnover ratio
Hours Efficiency No Profit per employee
ratios produced
Training Productivity Value ROI
ratios produced
Salary Average Turnover Revenue per
lead time employee
Skill Waste Reduction Employee Value added per
competency productivity employee
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22. There are five ways to increase ROA. . .
Reduce
Expenses
Increase Reduce
Sales Assets
Increase Increase
Price turnover
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23. DuPont Analysis
Sales COH 2005
$ 1,689,429,000
Cost of Goods
Sold + Extra Taxes Net Profits
$ 384,153,000 After Taxes
$ 358,612,000 Net Profit
Operating Margin
Income Expenses 21.23%
Statement $ 731,891,000 NI/SALES
Sales Return on
Interest $ 1,689,429,000 Total Assets
Expense (ROA)
$ 13,641,000 26.17%
NPM X TAT
Taxes
$ 201,132,000 Sales
$ 1,689,429,000 Total Asset
Turnover
1.23 Return on
Current SALES/TA Equity (ROE)
Assets 33.96%
$ 709,360,000 Total Assets ROA X FLM
$ 1,370,157,000
Net Fixed
Assets & Other Stockholders'
$ 660,797,000 Equity
Balance $ 1,055,920,000 Financial
Sheet Current Leverage
Liabilities Multiplier (FLM)
$ 265,661,000 Total 1.30
Liabilities Total Liabilities TA/EQUITY
Long Term $ 314,237,000 & Stockholders'
Debt Equity = Total
$ 3,270,000 Assets
Stockholders $ 1,370,157,000
Other Equity
Liabilities $ 1,055,920,000
23 $ 45,306,000

24. The ROA at various levels?
 At corporate level
It is easy to calculate ROA at corporate
level.
At departmental level
Most likely
At supervisory level
It is still possible to arrive at the
ROA at supervisor level
 At individual level
Some employees has no assets
attached to them
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© Arriffin 2009

25. Steps in calculating ROA for employees
1. Draw an income statement fo each employee
2. Identify assets employed to each employee.
(Assets allocated to the employee)
3. ROA determine the viability of each job but not the
fairness of the job pay.
4. Use return on pay (ROP) to compare the performance of
each employee with relation to their salary or
compensation plan.
5. Profits / Sales x Sales / pay = ROP
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© Arriffin 2009

26. Layers of Measurement
Performance
Senior Management Management
Enterprise
Goals & Program Office
Objectives
Measurement
Process Management (QP) Repository
Improve
Process .. Control
Process Enterprise
Define
Execute
Process Measure Measures Database •
•
Applications
Projects
• Employees
• Client
Project A Project B Project C
Project
Product Product X Product Y Project/Product
Data
Historical Measures
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27. Common Misuse of Performance Measurement?
• Behavior is influenced by measures
– “You get what you measure because that is what you reveal
as what you think is important.” (Sink and Tuttle, 1989)
• But, are we measuring the right things?
– How do we know the measure accurately reflects system
performance?
– How do we know that the measure is under the control of
those it’s attributed to?
– Are we measuring to control or to improve, or both?
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28. A good KPI system are measures
• At outcome level - performance level
– Corporate Level
• At output level - Production level
• At process level – efficiency and productivity
measures
– Sales & Production
• At input level - alternative labour, material
and overhead choices

29. Questions & Answers
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