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SCORECARD AND KPIS 101
Based on
www.bscdesigner.com/scorecard-and-kpis-101.htm
By Aleksey Savkin, bscdesigner.com
BSC DESIGNER
NOT ALL INDICATORS ARE KPIS
• It doesn’t make sense to call something “KPI”
until a business context is defined.
BSC DESIGNER
NOT ALL INDICATORS ARE KPIS
• It doesn’t make sense to call something “KPI”
until a business context is defined.
• But I’ll be using the “KPI” term as it is more
popularized.
BSC DESIGNER
NOT ALL INDICATORS ARE KPIS
• It doesn’t make sense to call something “KPI”
until a business context is defined.
• 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”
BSC DESIGNER
Scorecard and KPIs 101
WHAT PROBLEMS ARE KPIS AND A
SCORECARD SUPPOSED TO SOLVE?
• Indicators are numerical values that are linked
to some kind of process.
BSC DESIGNER
WHAT PROBLEMS ARE KPIS AND A
SCORECARD SUPPOSED TO SOLVE?
• 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.
BSC DESIGNER
WHAT PROBLEMS ARE KPIS AND A
SCORECARD SUPPOSED TO SOLVE?
ON INDICATOR LEVEL:
• Show the current value.
BSC DESIGNER
WHAT PROBLEMS ARE KPIS AND A
SCORECARD SUPPOSED TO SOLVE?
ON INDICATOR LEVEL:
• Show the current value.
• Introduce the performance function
BSC DESIGNER
WHAT PROBLEMS ARE KPIS AND A
SCORECARD SUPPOSED TO SOLVE?
ON INDICATOR LEVEL:
• Show the current value.
• Introduce the performance function
• Interpret the value of an indicator on a
baseline/target scale.
BSC DESIGNER
WHAT PROBLEMS ARE KPIS AND A
SCORECARD SUPPOSED TO SOLVE?
ON SCORECARD LEVEL:
• Group indicators into categories.
BSC DESIGNER
WHAT PROBLEMS ARE KPIS AND A
SCORECARD SUPPOSED TO SOLVE?
ON SCORECARD LEVEL:
• Group indicators into categories.
• Specify the relevant importance.
BSC DESIGNER
WHAT PROBLEMS ARE KPIS AND A
SCORECARD SUPPOSED TO SOLVE?
ON SCORECARD LEVEL:
• Group indicators into categories.
• Specify the relevant importance.
• Calculate the performance of category.
BSC DESIGNER
WHAT PROBLEMS ARE KPIS AND A
SCORECARD SUPPOSED TO SOLVE?
ON SCORECARD LEVEL:
• Group indicators into categories.
• Specify the relevant importance.
• Calculate the performance of category.
• Calculate the total performance.
BSC DESIGNER
INDICATOR LEVEL
THE VALUE OF AN INDICATOR
530 $
20 hours/week
BSC DESIGNER
THE VALUE OF AN INDICATOR
530 $
20 hours/week
Numeric value
BSC DESIGNER
THE VALUE OF AN INDICATOR
530 $
20 hours/week
Numeric value Measure unit
BSC DESIGNER
THE ROLE OF THE PERFORMANCE
FUNCTION
• What the value “530$” means?
BSC DESIGNER
THE ROLE OF THE PERFORMANCE
FUNCTION
• What the value “530$” means?
• Is it a high or low?
BSC DESIGNER
THE ROLE OF THE PERFORMANCE
FUNCTION
• We need a measurement scale !
BSC DESIGNER
We need a measurement scale !
BSC DESIGNER
We need a measurement scale !
BSC DESIGNER
VALUE
TIME
We need a measurement scale !
BSC DESIGNER
VALUE
TIME
Max
Max – means the maximal possible value
of an indicator
We need a measurement scale !
BSC DESIGNER
VALUE
TIME
Max
Max – means the maximal possible value
of an indicator
Min
Min – means the minimal possible value
of an indicator
We need a measurement scale !
BSC DESIGNER
VALUE
TIME
Max
Min
We need a measurement scale !
BSC DESIGNER
THE PERFORMANCE OF AN INDICATOR
CAN BE CALCULATED AS
Performance (Value), % = x 100%
(Value – Min)
(Max – Min)
BSC DESIGNER
In our example:
Value = 530
Min = 0
Max = 600
THE PERFORMANCE OF AN INDICATOR
CAN BE CALCULATED AS
BSC DESIGNER
THE PERFORMANCE OF AN INDICATOR
CAN BE CALCULATED AS
Performance (Value), % = x 100%
= 88%
(530– 0)
(600 – 0)
BSC DESIGNER
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
!
BSC DESIGNER
THE PERFORMANCE FUNCTION IS NOT
ALWAYS LINEAR
• For example, the performance might grow very
slowly in the beginning, but then increase rapidly
BSC DESIGNER
The performance function of KPI
Source: www.bscdesigner.com
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)
THE PERFORMANCE FUNCTION IS
NOT ALWAYS LINEAR
BSC DESIGNER
WITH THE INCREASE OF THE VALUE
THE PERFORMANCE MIGHT BE
DECREASING
!
BSC DESIGNER
WITH THE INCREASE OF THE VALUE
THE PERFORMANCE MIGHT BE
DECREASING
• For example, the more waiting time there is in the
support center, the lower is its performance.
BSC DESIGNER
The performance function of KPI
Source: www.bscdesigner.com
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)
WITH THE INCREASE OF THE VALUE
THE PERFORMANCE MIGHT BE
DECREASING
BSC DESIGNER
CALCULATING THE PROGRESS
• Sometimes it is necessary to focus attention
on a very specific part of the performance
interval.
BSC DESIGNER
VALUE
TIME
Max
Min
CALCULATING THE PROGRESS
BSC DESIGNER
VALUE
TIME
Max
Min
CALCULATING THE PROGRESS
Planning horizonHistorical values
BSC DESIGNER
VALUE
TIME
Max
Min
CALCULATING THE PROGRESS
Planning horizonHistorical values
Baseline
Target
BSC DESIGNER
VALUE
TIME
Max
Min
CALCULATING THE PROGRESS
Planning horizonHistorical values
Baseline
Target
“Min” and “Max” are used to
calculate the performance of
the KPI.
BSC DESIGNER
VALUE
TIME
Max
Min
CALCULATING THE PROGRESS
Planning horizonHistorical 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?”
BSC DESIGNER
VALUE
TIME
Max
Min
CALCULATING THE PROGRESS
Planning horizonHistorical values
Baseline
Target
“Baseline” and “Target” are
used to calculate the
progress.
BSC DESIGNER
VALUE
TIME
Max
Min
CALCULATING THE PROGRESS
Planning horizonHistorical values
Baseline
Target
“Baseline” and “Target” are
used to calculate the
progress.
The progress answers the
question: “To what extent
was the target achieved?”
BSC DESIGNER
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.
BSC DESIGNER
SCORECARD LEVEL
THE RELEVANT IMPORTANCE OF KPIS
A support center has two KPIs:
– “Average email response time,” hours
BSC DESIGNER
THE RELEVANT IMPORTANCE OF KPIS
A support center has two KPIs:
– “Average email response time,” hours
– “First contact resolution rate,” %
BSC DESIGNER
THE RELEVANT IMPORTANCE OF KPIS
A support center has two KPIs:
– “Average email response time,” hours
– “First contact resolution rate,” %
What KPI is more important?
BSC DESIGNER
THE RELEVANT IMPORTANCE OF KPIS
• A company can make ”Average email response
time” equal to 10 minutes,
BSC DESIGNER
THE RELEVANT IMPORTANCE OF KPIS
• A company can make ”Average email response
time” equal to 10 minutes,
• But this will not make customers happy, as the
“First contact resolution rate” will be very low.
BSC DESIGNER
THE RELEVANT IMPORTANCE OF KPIS
• A company can make ”Average email response
time” equal to 10 minutes,
• 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.
THE RELEVANT IMPORTANCE OF KPIS
• To reflect this idea we need a concept
of “weight” :
– “Average email response time,” hours
– “First contact resolution rate,” %
BSC DESIGNER
THE RELEVANT IMPORTANCE OF KPIS
• To reflect this idea we need a concept
of “weight” :
– “Average email response time,” hours; weight = 4
– “First contact resolution rate,” %; weight = 6
BSC DESIGNER
THE RELEVANT IMPORTANCE OF KPIS
• To reflect this idea we need a concept
of “weight” :
– “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.”
BSC DESIGNER
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.
BSC DESIGNER
CALCULATING THE TOTAL
PERFORMANCE
• Here we have the structure of the scorecard
C1..4 – are categories. Metric-i,j are indicators
together with their weight and performance
values:
BSC DESIGNER
CALCULATING THE TOTAL
PERFORMANCE
• Let’s convert this into a different notation:
BSC DESIGNER
CALCULATING THE TOTAL
PERFORMANCE
• We had our weight on a scale 1..10, so before
moving ahead we need to calculate a
normalized weight:
BSC DESIGNER
CALCULATING THE TOTAL
PERFORMANCE
• 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
CALCULATING THE TOTAL
PERFORMANCE
• The final formula for the total performance
index of the scorecard will be:
Where M is a number of categories.
BSC DESIGNER
CALCULATING THE TOTAL
PERFORMANCE
• These calculations are simple if you don’t have
subcategories in your scorecard.
BSC DESIGNER
CALCULATING THE TOTAL
PERFORMANCE
• These calculations are simple if you don’t have
subcategories in your scorecard.
• If you had subcategories, the weight of these
subcategories should be taken into account in
a similar way.
BSC DESIGNER
CALCULATING THE TOTAL
PERFORMANCE
• These calculations are simple if you don’t have
subcategories in your scorecard.
• 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.
BSC DESIGNER
CALCULATING THE TOTAL
PERFORMANCE
• 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
BSC DESIGNER
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

  • 1. SCORECARD AND KPIS 101 Based on www.bscdesigner.com/scorecard-and-kpis-101.htm By Aleksey Savkin, bscdesigner.com BSC DESIGNER
  • 2. NOT ALL INDICATORS ARE KPIS • It doesn’t make sense to call something “KPI” until a business context is defined. BSC DESIGNER
  • 3. NOT ALL INDICATORS ARE KPIS • It doesn’t make sense to call something “KPI” until a business context is defined. • But I’ll be using the “KPI” term as it is more popularized. BSC DESIGNER
  • 4. NOT ALL INDICATORS ARE KPIS • It doesn’t make sense to call something “KPI” until a business context is defined. • 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” BSC DESIGNER
  • 6. WHAT PROBLEMS ARE KPIS AND A SCORECARD SUPPOSED TO SOLVE? • Indicators are numerical values that are linked to some kind of process. BSC DESIGNER
  • 7. WHAT PROBLEMS ARE KPIS AND A SCORECARD SUPPOSED TO SOLVE? • 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. BSC DESIGNER
  • 8. WHAT PROBLEMS ARE KPIS AND A SCORECARD SUPPOSED TO SOLVE? ON INDICATOR LEVEL: • Show the current value. BSC DESIGNER
  • 9. WHAT PROBLEMS ARE KPIS AND A SCORECARD SUPPOSED TO SOLVE? ON INDICATOR LEVEL: • Show the current value. • Introduce the performance function BSC DESIGNER
  • 10. WHAT PROBLEMS ARE KPIS AND A SCORECARD SUPPOSED TO SOLVE? ON INDICATOR LEVEL: • Show the current value. • Introduce the performance function • Interpret the value of an indicator on a baseline/target scale. BSC DESIGNER
  • 11. WHAT PROBLEMS ARE KPIS AND A SCORECARD SUPPOSED TO SOLVE? ON SCORECARD LEVEL: • Group indicators into categories. BSC DESIGNER
  • 12. WHAT PROBLEMS ARE KPIS AND A SCORECARD SUPPOSED TO SOLVE? ON SCORECARD LEVEL: • Group indicators into categories. • Specify the relevant importance. BSC DESIGNER
  • 13. WHAT PROBLEMS ARE KPIS AND A SCORECARD SUPPOSED TO SOLVE? ON SCORECARD LEVEL: • Group indicators into categories. • Specify the relevant importance. • Calculate the performance of category. BSC DESIGNER
  • 14. WHAT PROBLEMS ARE KPIS AND A SCORECARD SUPPOSED TO SOLVE? ON SCORECARD LEVEL: • Group indicators into categories. • Specify the relevant importance. • Calculate the performance of category. • Calculate the total performance. BSC DESIGNER
  • 16. THE VALUE OF AN INDICATOR 530 $ 20 hours/week BSC DESIGNER
  • 17. THE VALUE OF AN INDICATOR 530 $ 20 hours/week Numeric value BSC DESIGNER
  • 18. THE VALUE OF AN INDICATOR 530 $ 20 hours/week Numeric value Measure unit BSC DESIGNER
  • 19. THE ROLE OF THE PERFORMANCE FUNCTION • What the value “530$” means? BSC DESIGNER
  • 20. THE ROLE OF THE PERFORMANCE FUNCTION • What the value “530$” means? • Is it a high or low? BSC DESIGNER
  • 21. THE ROLE OF THE PERFORMANCE FUNCTION • We need a measurement scale ! BSC DESIGNER
  • 22. We need a measurement scale ! BSC DESIGNER
  • 23. We need a measurement scale ! BSC DESIGNER
  • 24. VALUE TIME We need a measurement scale ! BSC DESIGNER
  • 25. VALUE TIME Max Max – means the maximal possible value of an indicator We need a measurement scale ! BSC DESIGNER
  • 26. VALUE TIME Max Max – means the maximal possible value of an indicator Min Min – means the minimal possible value of an indicator We need a measurement scale ! BSC DESIGNER
  • 27. VALUE TIME Max Min We need a measurement scale ! BSC DESIGNER
  • 28. THE PERFORMANCE OF AN INDICATOR CAN BE CALCULATED AS Performance (Value), % = x 100% (Value – Min) (Max – Min) BSC DESIGNER
  • 29. In our example: Value = 530 Min = 0 Max = 600 THE PERFORMANCE OF AN INDICATOR CAN BE CALCULATED AS BSC DESIGNER
  • 30. THE PERFORMANCE OF AN INDICATOR CAN BE CALCULATED AS Performance (Value), % = x 100% = 88% (530– 0) (600 – 0) BSC DESIGNER
  • 31. 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
  • 32. THE PERFORMANCE FUNCTION IS NOT ALWAYS LINEAR ! BSC DESIGNER
  • 33. THE PERFORMANCE FUNCTION IS NOT ALWAYS LINEAR • For example, the performance might grow very slowly in the beginning, but then increase rapidly BSC DESIGNER
  • 34. The performance function of KPI Source: www.bscdesigner.com Performance (Value), % = Power(Value,10) / Power(Max, 10) The performance might grow very slowly in the beginning, but then increase rapidly.
  • 35. Performance (Value), % = x 100% Power (Value,10) Power (Max, 10) THE PERFORMANCE FUNCTION IS NOT ALWAYS LINEAR BSC DESIGNER
  • 36. WITH THE INCREASE OF THE VALUE THE PERFORMANCE MIGHT BE DECREASING ! BSC DESIGNER
  • 37. WITH THE INCREASE OF THE VALUE THE PERFORMANCE MIGHT BE DECREASING • For example, the more waiting time there is in the support center, the lower is its performance. BSC DESIGNER
  • 38. The performance function of KPI Source: www.bscdesigner.com Performance (Value), % = ((Max – Value) / (Max – Min)) * 100% With the increase of the value the performance might be decreasing as well.
  • 39. Performance (Value), % = x 100% (Max – Value) (Max – Min) WITH THE INCREASE OF THE VALUE THE PERFORMANCE MIGHT BE DECREASING BSC DESIGNER
  • 40. CALCULATING THE PROGRESS • Sometimes it is necessary to focus attention on a very specific part of the performance interval. BSC DESIGNER
  • 42. VALUE TIME Max Min CALCULATING THE PROGRESS Planning horizonHistorical values BSC DESIGNER
  • 43. VALUE TIME Max Min CALCULATING THE PROGRESS Planning horizonHistorical values Baseline Target BSC DESIGNER
  • 44. VALUE TIME Max Min CALCULATING THE PROGRESS Planning horizonHistorical values Baseline Target “Min” and “Max” are used to calculate the performance of the KPI. BSC DESIGNER
  • 45. VALUE TIME Max Min CALCULATING THE PROGRESS Planning horizonHistorical 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?” BSC DESIGNER
  • 46. VALUE TIME Max Min CALCULATING THE PROGRESS Planning horizonHistorical values Baseline Target “Baseline” and “Target” are used to calculate the progress. BSC DESIGNER
  • 47. VALUE TIME Max Min CALCULATING THE PROGRESS Planning horizonHistorical values Baseline Target “Baseline” and “Target” are used to calculate the progress. The progress answers the question: “To what extent was the target achieved?” BSC DESIGNER
  • 48. 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. BSC DESIGNER
  • 50. THE RELEVANT IMPORTANCE OF KPIS A support center has two KPIs: – “Average email response time,” hours BSC DESIGNER
  • 51. THE RELEVANT IMPORTANCE OF KPIS A support center has two KPIs: – “Average email response time,” hours – “First contact resolution rate,” % BSC DESIGNER
  • 52. THE RELEVANT IMPORTANCE OF KPIS A support center has two KPIs: – “Average email response time,” hours – “First contact resolution rate,” % What KPI is more important? BSC DESIGNER
  • 53. THE RELEVANT IMPORTANCE OF KPIS • A company can make ”Average email response time” equal to 10 minutes, BSC DESIGNER
  • 54. THE RELEVANT IMPORTANCE OF KPIS • A company can make ”Average email response time” equal to 10 minutes, • But this will not make customers happy, as the “First contact resolution rate” will be very low. BSC DESIGNER
  • 55. THE RELEVANT IMPORTANCE OF KPIS • A company can make ”Average email response time” equal to 10 minutes, • 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.
  • 56. THE RELEVANT IMPORTANCE OF KPIS • To reflect this idea we need a concept of “weight” : – “Average email response time,” hours – “First contact resolution rate,” % BSC DESIGNER
  • 57. THE RELEVANT IMPORTANCE OF KPIS • To reflect this idea we need a concept of “weight” : – “Average email response time,” hours; weight = 4 – “First contact resolution rate,” %; weight = 6 BSC DESIGNER
  • 58. THE RELEVANT IMPORTANCE OF KPIS • To reflect this idea we need a concept of “weight” : – “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.” BSC DESIGNER
  • 59. 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. BSC DESIGNER
  • 60. CALCULATING THE TOTAL PERFORMANCE • Here we have the structure of the scorecard C1..4 – are categories. Metric-i,j are indicators together with their weight and performance values: BSC DESIGNER
  • 61. CALCULATING THE TOTAL PERFORMANCE • Let’s convert this into a different notation: BSC DESIGNER
  • 62. CALCULATING THE TOTAL PERFORMANCE • We had our weight on a scale 1..10, so before moving ahead we need to calculate a normalized weight: BSC DESIGNER
  • 63. CALCULATING THE TOTAL PERFORMANCE • 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
  • 64. CALCULATING THE TOTAL PERFORMANCE • The final formula for the total performance index of the scorecard will be: Where M is a number of categories. BSC DESIGNER
  • 65. CALCULATING THE TOTAL PERFORMANCE • These calculations are simple if you don’t have subcategories in your scorecard. BSC DESIGNER
  • 66. CALCULATING THE TOTAL PERFORMANCE • These calculations are simple if you don’t have subcategories in your scorecard. • If you had subcategories, the weight of these subcategories should be taken into account in a similar way. BSC DESIGNER
  • 67. CALCULATING THE TOTAL PERFORMANCE • These calculations are simple if you don’t have subcategories in your scorecard. • 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. BSC DESIGNER
  • 68. CALCULATING THE TOTAL PERFORMANCE • Professional scorecard software like BSC Designer will automate these calculations so that you can focus on the business side.
  • 69. MORE ABOUT THE BALANCED SCORECARD Find more insightful articles about the Balanced Scorecard in ”Articles” section at www.bscdesigner.com BSC DESIGNER
  • 70. THANK YOU! Feel free to send us your questions using the contact form at www.bscdesigner.com