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Operational KPIs and Performance Management
Are Your Daily Decisions Based on Fact?

by David Hatch, Aberdeen GroupFriday, June 27, 2008

 

Businesses thrive or fail based on their ability to identify, define, track, and act upon key performance metrics / indicators. Executives and line-of-business management are increasingly feeling the pressure to enable timelier and more accurate decisions in order to improve operational efficiencies. The faster and more accurately KPIs can be accessed, reviewed, analyzed, and acted upon, the better an organization can manage day-to-day operations and customer interactions. This study will investigate how organizations are approaching the identification and tracking of operational KPIs to improve timeliness and accuracy of decisions that affect daily performance.

Research Preview:

A research Preview provides as advanced look at an upcoming study and the research hypothesis which will not be explored based on proir research.

Context

Recent Aberdeen research has revealed that improvement of operational efficiencies is the top pressure driving companies to invest in operational business intelligence technologies (Figure 1).


Source: Aberdeen Group, December 2007

Performance management metrics have traditionally been accessed through technologies such as scorecards, dashboards, operational reporting, analytics, and “automated alerting.” Operational managers are increasingly demanding visibility into day-to-day metrics in order to align business activity with corporate objectives. This requires gathering, tracking, analyzing, and acting upon KPIs that can change multiple times throughout the business day or week.

The creation, management, and continual review of KPI data can prove to be a difficult process, particularly when large, complex data volumes are concerned. Projects also often involve the integration of data from a variety of disparate sources, complex formulas and calculations to derive accurate KPIs, and a host of infrastructure requirements to deliver the information in a meaningful format (reports / dashboards, scorecards, alerts) and via an effective medium (desktop, web, remote access, email, PDAs, mobile devices).

This report will explore the business processes that executives and line-of-business management employ to improve performance through the acceleration of operational decisions based on key performance metrics / indicators. Our research and analysis will provide:

  • Insight into the barriers preventing timely access to KPI information
  • Pointers towards Best-in-Class strategies and tactics for improving access to and use of key performance metrics for operational decision-making
  • Options and approaches for increasing the accuracy and timeliness of KPI information
  • A method for determining how to elevate company performance via KPI management to Best-in-Class levels through a set of strategic and tactical actions that have proven to be successful among industry peers

Aberdeen’s Hypothesis

From an end-user’s perspective, Aberdeen research will investigate how companies are meeting the challenge of defining, measuring, and refining operational KPIs that drive company performance. The study will determine what strategies and actions companies are taking to:

  • Understand the key operational business drivers that affect company performance
  • Establish a corporate and / or departmental set of operational KPIs
  • Align operational KPIs with line-of-business goals and incentives
  • Provide a method for making KPI-based performance visible to the enterprise
  • Create an on-going process for internal and external KPI review, evaluation, and re-alignment
Table 1: The Best-in-Class PACE Framework
Pressures Actions Capabilities Enablers
*Mandate to find operational efficiencies

* Adopt operational KPI methodology
* Align business goals to operational KPIs
* Improve timeliness and accuracy of operational business decisions

* Formal process for identifying and incorporating operational KPIs into day-to-day operations
* Continual internal and external review of operational KPIs
* Industry association or consortium membership for the purpose of identifying industry KPIs, benchmarks, and performance levels for competitive comparison
* Method for making KPIs visible to line-of-business management and decision-makers

* Dashboards
* Scorecards
* Business Intelligence (BI) platform or appliance
* BI query and reporting tools
* Advanced analytic application
* Data integration and hygiene / cleansing tool
* Automated alert technology
* High availability data management tools
* Information portals
* IT consulting services


Source: Aberdeen Group, June 2008

The performance metrics which will be used to determine Best-in-Class companies include those shown in Table 2.

Table 2: Best-in-Class Performance Metrics
Mertic Name Measurable Values Measured As

Customer satisfaction index

Percentage improvement in customer satisfaction, issue resolution speed, and resolution accuracy in past 12 months

Percentage improvement or decline
(-50% to >50% in increments of 10%)

Time-to-information

Time between actual business events and access to information about those events during past 12 months

Months to weeks, weeks to days, days to hours, hours to minutes, minutes to seconds, seconds to sub-second

Time-to-decision or action

Time between actual business events and action taken to address those events during past 12 months

Months to weeks, weeks to days, days to hours, hours to minutes, minutes to seconds, seconds to sub-second

Decision-maker visibility to KPIs

Percentage increase or decrease in visibility to operational KPIs among employees with operational responsibilities during past 12 months

Percentage increase or decrease
(-50% to >50% in increments of 10%)

Customer retention

Rating of customer retention performance during past 12 months

Percentage of actual retention during past 12 months (raw percentage or "don't know)


Source: Aberdeen Group, June 2008

Other metrics to be considered in this study:

  • End-user satisfaction
  • Existence of KPIs in four major scorecard categories: financial, customer, process, HR and innovation
  • Increase in number and types of decisions that can be made
  • Improvement in quality of information upon which decisions are based
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