Measuring process
improvement: Defining and
delivering actionable KPIs
using SAP NetWeaver
Business Intelligence
Dr. Bjarne Berg
© 2008 Wellesley Information Services. All rights reserved.
What We’ll Cover …
• Introduction & definitions
• Defining, Prioritizing, & Implementing KPIs
• Core KPIs (sales, finance & supply chain)
• Examples of dashboards, scorecards & cockpits
• Top-10 rules for performance management design &
development roadmap
• Wrap-up
2
What we will cover..
How to create a strategy and a roadmap for defining, prioritizing, &
implementing KPIs for process improvement.
Look at which KPIs are easiest to put in place & which require
greater effort when analyzing sales, finance & materials performance.
Gain insight into how others use dashboards, scorecards, & cockpits
to deliver KPIs to stakeholders.
Explore the top-10 rules for designing a performance management
solution, along with suggested SAP applications and tools.
How to avoid common pitfalls, such as poor cockpit construction
and performance, & emphasis on KPIs that few care about.
3
Dashboard, Scorecards, and Cockpits
Purpose
Usage
Updates
Data
Measures
Context
Source
Dashboard
Displays performance
Scorecard
Displays progress
Cockpits
Displays status and events
Performance monitoring
Performance management
Performance management
Real-time feeds
Monthly snapshots
Daily snapshots
Events
Summaries
Summaries and events
Metrics
KPIs
Metrics & KPIs
Exceptions/alerts
Targets and thresholds
Trends
Linked to systems
Linked to plans
Linked to BI systems
Sources: Wayne Eckerson, 2005;
Bjarne Berg 2006
• Many companies and people confuse the concepts of
dashboards, scorecards, and cockpits. They vary in terms of
purpose, usage, source, data, and measures
• Most SAP NetWeaver BI systems fall into the cockpits or
scorecard category
Definition KPI: “The level of achievement expected of the
average resource given the current operating environment”
4
Performance Measures
Performance measures are carefully
selected set of measures derived from
strategies, goals, & objectives that
represents a tool to communicate
strategic direction to the organization
for motivating change.
These form the basis to plan, budget,
structure the organization, and to
control results.
The Three KPI Dimensions:
 What to Measure
 How to Measure
 How to Interpret
Performance
Analysis
Decision
Making
Market
Response
Competitive
Advantage
Revenue Stimulation & Revenue Protection
Cost Reduction & Cost Avoidance
Productivity Improvement
Profitability Enhancement
Customer
Measures
Financial
Measures
 % Sales of New Products
 Market Share
 Customers Acquired
 ROI and ROA
 Customer Satisfaction
 Revenue Growth
Internal
Process
Measures
Innovation &
Learning
Measures
 Product Time to Market
 New Product Introduction
 Unit Manufacturing Cost
 Management Skills
 Days Supply of Inventory
 Employee Turnover
What We’ll Cover …
• Introduction & definitions
• Defining, Prioritizing, & Implementing KPIs
• Core KPIs (sales, finance & supply chain)
• Examples of dashboards, scorecards & cockpits
• Top-10 rules for performance management design &
development roadmap
• Wrap-up
6
Encourage Wide Array of Measures - The Three Types of Indicators
• Lagging - historical look at past performance (quarterly revenue,
hours off due to job related injury, employee turnover)
• Leading - predictive of future results (safety training completion
rate, scheduled maintenance compliance rate, grievances)
• Real-Time – where things are right now (inventory levels,
employee count, contractual obligations outstanding)
4 Signs of a Good Indicator:
• Tracks mission critical outcomes and activities
• Is influenced by productive behavior but can’t be easily
manipulated by your team
• Something that all team members can focus their efforts on
• Value of measuring exceeds cost of measuring
7
The 7 KPI “Commandments”
1.
Performance indicators should have a sponsor, the sponsor is the
person or organization element responsible for the definition of the
indicator and its purpose and the maintenance thereof
2.
A KPI may be ”typed” as internal, or “customer facing”
3.
May be linked to some form of external analysis technique, such as
SIGMA Six, the EFQM etc.
4.
Must have a clearly defined aim or purpose.
5.
Must have a descriptive name or title. The name should be as short
as possible, but be meaningful.
6.
May have an effective date, and a redundancy date. It is likely that a
KPI will have a life span.
7.
By definition, a KPI is a measure or yardstick. It follows that there
must be a method or formula for calculating the measure itself and
associated scores
Source: Performance Management Association (PMA) - 2006
Use the Value Chain to Identify KPI Requirements
Use the value chain as a guide to identify information needed
to analyze performance measures that support strategies
What tasks must be completed on a
regular basis to add value to the end
“customers” of the process?
What key events need to occur
for the business to be
successful?
How can we analyze the success of
the business and progress toward
that success?
What we want is a “war room”
like Europe’s SHAPE
headquarters to monitor the state
of enterprise & the direction
What We’ll Cover …
• Introduction & definitions
• Defining, Prioritizing, & Implementing KPIs
• Core KPIs (sales, finance & supply chain)
• Examples of dashboards, scorecards & cockpits
• Top-10 rules for performance management design &
development roadmap
• development roadmap - operational, managerial &
executive KPIs
• Wrap-up
10
Use the Value Chain to Identify KPI Requirements
Plan/ Design
Products/
Services
Perform
Procurement
•Equipment/ Labor (Utilization)
•Headcount
•Process Steps (Number)
•Product Development (Cost)
•Product Development (Cycle Time)
•Product Introduction (Number)
•Schedule/ Cost Estimates (Accuracy)
•Equipment/ Labor (Utilization)
•Design quality (rework count)
•Headcount
•More…
Produce
Products/
Service
Distribute
Products
Market / Sell
Products /
Services
Manage
Customer
Service
•Process Steps (Number)
•Purchase Discounts (Value)
•Purchase Order (Volume/ Frequency)
•Purchase Price Variance (Value)
•Purchasing (Cost)
•Purchasing (Cycle Time)
•Supplier Defects (Number)
•Supplier Lead Time
•Supplier On-time Delivery
•Suppliers (Number)
The first step in KPI definition is to determine what is the value driver of
your organization’s success. The KPIs should be different for a sales and
marketing firm, a manufacturing driven firm or a service firm
KPI Requirements - Manufacturing
Plan/ Design
Products/
Services
Perform
Procurement
•Changeover/ Turnaround (Cycle Time)
•Defects/ Off-Quality (Cost)
•Defects/ Off-Quality (Volume/ Quantity)
•Engineering Design Changes (Cycle Times)
•Engineering Design Changes (Volume/
Frequency)
•Equipment/ Labor (Utilization)
•Parts/ Stock Keeping Units (Number)
•Inventory Work In Process (Level/ Value)
•Process Steps (Number)
•Headcount
•Rework (Cost)
•Scrap/ Waste (Cost)
Produce
Products/
Service
Distribute
Products
Market / Sell
Products /
Services
Manage
Customer
Service
•Manufacturing (Cycle Time)
•Production (Lot/Batch Size)
•Production Schedule (Accuracy/ Fulfillment)
•Productivity/ Throughput
•Quality of Service
•Rework (Volume/ Frequency)
•Scheduled Maintenance (Cost)
•Scheduled Maintenance (Cycle Time)
•Scheduled Maintenance (Frequency)
•Theft/ Shrinkage (Cost)
•Unscheduled Maintenance (Cost)
•Unscheduled Maintenance (Cycle Time)
•Unscheduled Maintenance (Frequency)
KPI Requirements – Distribution of Products
Plan/ Design
Products/
Services
Perform
Procurement
Produce
Products/
Service
•Carriers (Number)
•Dock-to-Stock (Cycle Time)
•Equipment/ Labor (Utilization)
•Headcount
•Inventory (Accuracy)
•Inventory Finished Goods (Level/ Value)
•Inventory Finished Goods (Turnover)
•Inventory In transit (Level/ Value)
•Inventory Raw Materials (Level/ Value)
•Inventory Raw Materials (Turnover)
•Picking/ Packing (Cycle Time)
•Process Steps (Number)
•Picking (Accuracy)
•Many others…
Distribute
Products
Market / Sell
Products /
Services
Manage
Customer
Service
Measures in this area can be supported by
SAP modules that captures events such as
SAP’s Supply Chain Event manager (SCEM)
KPI Requirements – Marketing & Sale of Products/Services
Plan/ Design
Products/
Services
Perform
Procurement
Produce
Products/
Service
•Advertising Effectiveness (Awareness)
•Advertising Effectiveness (Perception)
•Annual Purchase Volume
•Closure/ Conversion Rate
•Customer Complaints (Volume/Frequency)
•Customer Retention Rates
•Customer Returns (Number)
•Design/ Formulation/ Package Changes
(Number)
•Distribution Channels (Number)
•Product/ Brand Forecast (Cycle Time)
•Variance to Plan (Market Share)
•Variance to Plan (Production Cost/
Volume)
•Variance to Plan (Sales Value/ Units)
Distribute
Products
Market / Sell
Products /
Services
Manage
Customer
Service
•In-Stock Ratio on Promoted items/ Rainchecks
•Marketing (Cost)
•Marketing (Cycle Time)
•Marketing Effectiveness (Cost)
•Marketing Effectiveness (Cycle Time)
•Product/ Brand Forecast (Accuracy)
•Forecast (Accuracy)
•Forecast (Cycle Time)
•Headcount
•Event ROI
•Shelf/ Floor Allotment
•Shopping Frequency
•SKU’s (Number)
•Traffic Count
•Transaction Size
Use the Value Chain to Identify KPI Requirements
Plan/ Design
Products/
Services
Perform
Procurement
Produce
Products/
Service
•Adjusted Orders (Volume/Frequency)
•Backorders/ Stockouts
(Volume/Frequency)
•Billing (Cost)
•Billing (Cycle Time)
•Credit/ Debit Memos (Volume/
Frequency)
•Customer Satisfaction Rating
•Equipment/ Labor (Utilization)
•Headcount
•Inquiries & Complaints
(Volume/Frequency)
•On-time Delivery Rate
•Order Fill Ratio
Distribute
Products
Market / Sell
Products /
Services
Manage
Customer
Service
•Order Fulfillment (Cycle Time)
•Order Processing (Cycle Time)
It is just as important
•Order Processing (volume)
to retain a customer
•Process Steps (Number)
as it is to attract a
•Response/ Wait Time
new one.
•Warranties/ Claims/ Returns (Cost)
•Warranties/ Claims/ Returns
KPIs can help an
(Volume/Frequency)
organization with
high customer turnover to refocus, and
shift some of the
marketing budget to
customer retention.
Performance Measures by Information Category
You can also organize KPIs
around information
categories or key
organizational objects such
as store, warehouse,
balance sheet etc.
•
•
•
•
•
•
•
•
Store inventory performance • YTD inventory turn
System inventory per store
• Inventory performance
Store inventory per store
• BOM inventory
Sales floor inventory per store • EOM inventory
Backroom inventory per store • Turnover
DC inventory per store
• Monthly average
Backroom % store inventory
inventory
YTD inventory turn
• Shortage
•
Inventory
•
Store performance
• Sales per payroll hour
• Units sold per payroll hour
• Average sale per unit
• Average units per customer
• Average transaction per
payroll hour
• Average sales per customer
• Average hourly rate
Performance
Measures
Store
Retail
•
•
•
•
•
•
08
Gross Margin
Markdown
Stock Shortage
Inventories at retail
Marketing ROI
Industry measures:
PMU%, RMU%,
CMU%, ESMU%
Income Statement
Balance Sheet
P&L
• Balance Sheet
• GM
• AP leveraging
• Working capital amount
• AR turn
• Inventory turnover
• Average inventory
• Delinquency rate
• ROI
Where do I start?
Do NOT include any measure just because:
Breakdown of Value
Chain into Key
Sub-processes
Tasks Performed within
Sub-processes
The data is easily available
It is already being used
The manager likes those numbers
It can be embarrassing to the organization if we
don’t include some ‘good’ numbers
 There is a political pressure to include a what
others have done in the past




Be very carefully what KPIs you include:
Strategies or Drivers
of Success
Performance Measures
that Support
Strategies
1.
Things are not always measured because they
are important.
2.
They are important because they are measured!
17
What We’ll Cover …
• Introduction & definitions
• Defining, Prioritizing, & Implementing KPIs
• Core KPIs (sales, finance & supply chain)
• Examples of dashboards, scorecards & cockpits
• Top-10 rules for performance management design &
development roadmap
• development roadmap - operational, managerial &
executive KPIs
• Wrap-up
18
Background
Sedgwick county has 21 cities, including
the city of Wichita with 354,000 people. It
also has 27 townships and an area of 1,008
square miles.
Sedgwick County is home to a number of
aviation-related industries and is known as
the “Air Capital of the World.”
Background (cont.)
• The county has many organizations, such as public health,
fire, emergency medical services (ambulances), sheriff and
jail operation, forensic center, code enforcement, registrar
of deeds, county clerk, criminal justice (district attorney,
district courts), highways, mental health services, parks,
solid waste, housing, election, HR, treasurer, tax collection,
county zoo and coliseums, and much more …
• A major challenge was to measure these many services
effectively to improve accountability and achieve
transparency.
20
Determine where you need to go and the steps to get there…
1. Develop Management Story
2. Develop Primary KPI and
Secondary KPIs
3. Group KPIs into KPI Themes
How Do You Manage? - Three Components of a Management Story
•Primary Outcome: KPI
•Identify Service Requirements (accuracy, timeliness, quality, volume)
•Manage Resources to Meet Service Requirements (people, tools,
process, communicate with funding source)
21
A User Experience Example
Our first step is to navigate to the departmental KPIs
22
22
Accessing Frames
Now we want to explore the summary cockpit for Public Safety
23
23
Accessing Summary Cockpits
These KPIs are weighted measures of six KPIs for the emergency
management services. The index is color coded for acceptable
performance levels.
We can click on any graph to enlarge it …
24
24
Drilling Down to Details
Here we can see that the index has turned red. That indicates that further
research is warranted. We added a new drill-down button to make user
navigation easier …
25
Note: This is sample data from the test system
25
Exploring the Emergency Management Profile
The profile does not contain benchmark data, but is informative about the
activities. Here we explore the number of EMS 911 calls.
From the EMS profile, users can access:
1. Primary KPIs for the organization
2. Program outcome KPIs
3. Tertiary KPIs to manage the operations
26
KPIs are for all levels of the organization
26
Program Outcomes for EMS
Program outcomes include detailed benchmarks for monthly performance
and are coded red, yellow, and green based on actual data. Here we see
ambulance performance for one month.
27
- Building hierarchies of
measures gives everyone, at all
levels of the organization, some
benefits of using the cockpit.
- Getting the management to use
the same tool is a major benefit
of SAP NetWeaver BI.
27
Tertiary Operational Indicators for EMS
The tertiary indicators are most important for the director of Emergency
Management Services. It may be combination of survey data taken
periodically and system data loaded monthly.
Don’t be afraid of merging periodical data, such as customer
satisfaction and employee
28 ratings taken every six months,
with operational data from source systems
28
Tertiary Financial Indicators for EMS
By making financial data easily accessible with the operational data, the
department managers see a greater benefit of using the cockpits.
The data can be annual, monthly, or weekly, as long as it
is used for trend lining and management decisions.
29
Be careful about adding daily information. When doing
so, you are leaving management cockpits and have
started building dashboards which have different usage
communities and a variety of different tools
29
Back to the Walls
This case study has 821 KPIs for management and operations –
we only looked at one small area with 18 KPIs so far. Let us look
at the senior management’s view of the cockpit and the
community profile …
For senior management, the KPIs tend to have more broad
applications in terms of scope and level of aggregation. Policies
and budgets are based on overall performance and not the
day-to-day operations which may fluctuate by season.
30
Dashboards – not cockpits, are used for operational management30
The Senior Management Community Profile
The Community Profile is a great way to summarize the
organization in terms of descriptive statistics. It is a very highlevel overview of the status of the organization.
For commercial enterprises, this is an area that may contain
a summary of all employees, locations by demographic
information and organizational model, and/or summary
production volumes or sales volumes for last quarter, or
31
year, and trend lines. Keep the information very summarized
31
The Community Profile of an Organization
The community profile should be organized in sub-categories
that are informative, interesting, and have long-term trend line
value.
This example has six sub-groupings
of measures and a total of 34 KPIs.
32
For example purposes, we will explore the long-term Economic trend lines
Community Profile – Economic Indicators
For long-term indicators, don’t be afraid to use external data and data that
has annual updates. The collection of this data is simple, low cost, and
provides everyone with a shared knowledgebase.
In the community profile,
33 the data should be long-term
trends and relevant to strategic decision making
Keep the Cockpit Useful for a Large Community
By keeping the cockpit “wide” and for a large user community,
we were able to provide a shared view of a highly diverse
government organization
34
Build a “wide” cockpit with shared measures that is widely available to all users
34
Query Performance and Simplification in Infocubes
Legacy
Legacy
Reporting
Reporting
Legacy
systems
systems
systems
For Non-SAP data
Since single KPI values for a
given department and period
are stored in the SQL Server
and transmitted to BW. The
Queries takes on average 0.2
seconds !!!!
Users
Users
Users
Users
Users
SQL
Server
ASP page
SAP R/3
SAP BW
SAP
SEM-CPM
SAP
Portal
For SAP data
KPI_ID Period
1
2007-10
2
2007-11
3
2007-12
4
2007-07
5
2007-10
6
2008-01
…
…
…
…
Dept_ID
201
201
201
202
202
204
…
…
Value
0.65
0.64
0.68
386
394
16794
…
…
Period_type
Monthly
Monthly
Monthly
Qtr
Qtr
Annual
…
…
Locked
Y
Y
N
Y
Y
N
…
…
The details are kept in the
DSO and the InfoCube has
only the single value for
the department for the
period. Query speed is
therefore only 0.2 seconds
on average…
Automating Thresholds and the KPI Data from Non-SAP Systems
KPI_ID Period
1
2007-10
2
2007-11
3
2007-12
4
2007-07
5
2007-10
6
2008-01
…
…
…
…
Dept_ID
201
201
201
202
202
204
…
…
Value
0.65
0.64
0.68
386
394
16794
…
…
Period_type
Monthly
Monthly
Monthly
Qtr
Qtr
Annual
…
…
Locked
Y
Y
N
Y
Y
N
…
…
The data table in SQL
server provides a set of
columns that capture the
summary of the results for
the period for a
department.
This allows the department to update the KPI
values for a short time period to correct any errors
(done in a simple ASP page)
Threshold values (Red,
Yellow and Green) are
captured for each period,
so that the history of
historical thresholds can
be preserved.
KPI_ID Period
1
2007-10
2
2007-11
3
2007-12
4
2007-07
5
2007-10
6
2008-01
…
…
…
…
RThreashold YThreashold GThreashold
0.8000
0.7500
0.7499
0.8000
0.7500
0.7499
0.8000
0.7500
0.7499
450.0000
425.0000
424.9999
450.0000
425.0000
424.9999
21000.0000
17500.0000
17499.9999
…
…
…
…
…
…
Rules for Graphs and Real Estate
Try to avoid empty spaces, but don’t force unrelated measures
into the cockpit view — it confuses users
Don’t use as many types of graphs as possible,
and never mix more than 3 types of graphs. If you
use more, users have to interpret the pictures as well as the data.
Missing data
points add
irritation.
(it is hard to hide
bad data in a
cockpit)
37
37
Cockpit Rules for Graphs and Real Estate (cont.)
There is nothing wrong with using the same type of graphs on a
cockpit (e.g., tachometers or line charts). Users adapt quickly
and can absorb the information faster.
38
38
Tracking Changes Over Time – Annual Measures in Context
For an organization to act strategically, you need annual performance
measures to see the big picture. You often have to merge measures also.
This is of little value to the operational managers, but of great value to the
CFO, CEO, CxO, and upper-level executives.
When the executives
are looking at their organization, they
39
are frequently examining external data at an annual level
39
Use of Complex Graphing of Annual Measures
Sometimes measures have little value unless they are seen in
context of other indicators. You can use complex graphing
with different scales to address this.
Example: Number of fatalities in
road accidents have limited
value in assessing vehicle
safety without seeing the
context of total number of
accidents.
40
We can click on the graph
to examine this closer
40
Use of Complex Graphing of Annual Measures (cont.)
We now have two measures over five years of different scales.
However, you can merge these in a single graph with two
scales.
41
41
KPI Change Management Process
IT responsible
Change
Request form
Integration tested
Business responsible
QA environment
No
Approved?
Sr. mgmt. responsible
Yes
Approved?
Submission
No
No
Complete?
No
Approved?
Yes
Yes
Moved to
production
System tested
Scheduled
Devl. environment
Yes
Review
recommended?
No
Change
Request form
Unit Tested
Developed
Devl. environment
Yes
No
42
Approved?
Yes
The Change Management Form – Page 1
• To make this process work, you need a formal instrument.
• The instrument can be online (i.e., a Web page), electronic (Word
document), or a paper-based system.
• The form should contain at least these fields:
Change Request Form
Requestor Name:
Department
Phone number / email
The front page
that the
requestor fills
out
Describe the change requested, be
detailed
Why is it needed
How important is it that the
change occur? (how would you
manage if this is not done)
TBD
When is the change needed
When
possible
Future
release
Date
Break-fix
(right now)
43
The Change Management Form – Page 2
• This page is used by the system administrator or the project
team
• The purpose is to have controlled changes that are
scheduled and tested appropriately
For internal use only
Received date:
Reviewed by:
Comments/recommendation
The back page
that the system
admin and
approver fill out
Pending
Not-Approved
Future
release
Approved
Break-fix
(right now)
Pending
Prototyped
In QA
Tested
In Production
Approval status:
Approved by:
Approved date:
Assigned to:
Due date:
Development status:
44
44
What SAP Tool Should I Use? – Other Options
BW 3.x
Web AD
SAP NetWeaver 7.0
Web AD
SAP
NetWeaver
Visual
Composer
SAP
SEMCPM
Thirdparty
cockpits
Java SDK
tools
Portal
iViews
Multidimensional Analysis (full)
J
J
-
-
-
-
J
Portal integration
J
J
J
J
J
-
J
Information Broadcaster
J
J
-
-
-
-
-
Formatted reporting
-
J
-
-
-
-
-
Graphical options (delivered)
-
J
J
J
J
-
J
Automatic code generation
-
J
J
-
-
-
-
J
J
J
J
J
J
J
Direct support for non-BW data
-
-
J
-
J
-
J
Simplicity to use and learn
-
-
J
J
-
-
J
SAP integration
There are many options and sometimes the choice is based on what
45
you are familiar
with and whether you enjoy using new tools
What We’ll Cover …
• Introduction & definitions
• Defining, Prioritizing, & Implementing KPIs
• Core KPIs (sales, finance & supply chain)
• Examples of dashboards, scorecards & cockpits
• Top-10 rules for performance management design &
development roadmap
• Wrap-up
46
Top-10 rules for performance management design
1. Keep KPIs at an aggregated level. If it is a list of numbers it is
performance measures and not KPIs.
2. Use statistical methods to determine what your KPIs should be.
The objective is to increase net income. Question: Can you determine
what the KPI should be by looking at this report?
Fiscal
period
2008-01
2008-02
2008-03
2008-04
2008-05
2008-06
2008-07
2008-08
2008-09
2008-10
Sales
Manufacturing
costs
Shipment
costs
Administrative
costs
€ 35,210
€ 38,731
€ 42,604
€ 46,865
€ 51,551
€ 56,706
€ 62,377
€ 68,614
€ 75,476
€ 83,023
€ 3,521
€ 5,671
€ 4,686
€ 8,302
€ 5,155
€ 3,873
€ 6,238
€ 6,861
€ 7,548
€ 6,405
€ 6,338
€ 7,010
€ 7,754
€ 11,060
€ 9,485
€ 10,491
€ 8,302
€ 12,831
€ 14,189
€ 15,691
€ 6,098
€ 7,206
€ 7,638
€ 10,989
€ 9,654
€ 9,986
€ 8,506
€ 12,609
€ 14,306
€ 16,006
Other
Interest
expenses expenses
€ 5,387
€ 5,547
€ 5,699
€ 10,102
€ 7,642
€ 4,689
€ 10,116
€ 10,895
€ 12,130
€ 7,910
€ 1,761
€ 2,130
€ 2,556
€ 3,046
€ 7,887
€ 4,253
€ 4,990
€ 5,832
€ 6,793
€ 6,438
Taxes
Net
Income
€ 3,521
€ 3,098
€ 3,834
€ 5,313
€ 4,124
€ 3,969
€ 4,206
€ 4,529
€ 3,402
€ 5,313
€ 14,683
€ 17,072
€ 18,500
€ 20,125
€ 21,536
€ 24,412
€ 25,251
€ 27,667
€ 29,910
€ 34,968
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Top-10 rules for performance management design
2. Answer: Use a correlation matrix. Here we see what is correlated with
net income & what is not. These are the primary KPIs for this objective.
Sales
Sales
Manufacturing costs
Shipment costs
Administrative costs
Other expenses
Interest expenses
Taxes
Net Income
1.000
0.490
0.904
0.912
0.613
0.769
0.433
0.994
Manufacturing
costs
Shipment
costs
Administrative
costs
Other
expenses
Interest
expenses
1.000
0.599
0.623
0.860
0.339
0.482
0.469
1.000
0.997
0.588
0.682
0.559
0.914
1.000
0.604
0.700
0.557
0.921
1.000
0.548
0.336
0.548
1.000
0.289
0.748
Taxes
1.000
0.475
Net
Income
1.000
3. Keep detailed data in a Data Store Object (DSO), and roll it up to
InfoCubes for analysis. Use even more summarized cubes for your
KPIs. Query performance on dashboards are critical to your success.
4. IT does not own KPIs. Make sure your have a change control board
and executive (not senior management), sponsorship.
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Top-10 rules – Types of KPIs
5. Strategic KPIs Time-horizon: 6 months to 5+ years and should be forward
looking based on historical and market data. Users are CxOs, shareholders
and board of directors.
Ideal measures are summarized measures such as obsolete product mix
(sales trends), return on equity/Investments (ROE/ROI), weighted average cost
of capital (WACC), market segmentation, customer segmentation
6. Informational KPIs Time horizon: 1-12 months and is for senior & middle
management. Ideal KPIs include production data, vendor performance,
monthly and quarterly reports, division profit & loss KPIs, inventory, employee
data etc.
7. Operational KPIs Time horizon: 1 day to 1 month. Changes outside tolerances
require immediate action. User are line managers and operators. Typical KPIs
include shipments, production plans, transportation, customer complaints,
stock requirements, capacity management.
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Top-10 rules – Assigning KPI weights
8. Create KPIs that are clearly defined & assign weights to them. We can take
example #2 further (income statement), and use regression analysis to tell us
how much each factor should be weighted:
Regression Statistics
R Square
ANOVA Significance F
Intercept
Sales
Manufacturing costs
Shipment costs
Administrative costs
Other expenses
Interest expenses
Taxes
0.9999
0.0364% Error rate of our net income forecast model
Coefficients
P-value
(weights) t Stat (error rate)
128.86 0.38
73.89%
0.42 41.81
0.06% Extreemely good predtor (low error rate)
0.63 5.49
3.16% Good predictor (low error rate)
0.31 1.21
35.09%
-0.39 -1.36
30.72%
-0.56 -9.59
1.07% Good predictor (low error rate)
0.08 1.77
21.84%
0.29 3.62
6.86% Good predictor (low error rate)
Result: Monthly sales forecast model (99.97% accurate):
Net Income = €128.86 + (0.42 * sales amount) + (0.63 * manufacturing cost)
– (0.56* other expenses) – (0.29* tax amount)
(guess what my KPIs & weights will be)
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Top -10 rules: The KPI Roadmap - How?
9. Follow these work steps to create an executionable KPI Roadmap strategy:
Who
What
CxO
CxO, Project manager & team members
Project mgr. & team members
Project mgr. & team members
Key invites, Project mgr. & team members
CxO, Project mgr. & team members
CxO, Project mgr.
Team members, Project mgr., middle
management
Project mgr. & middle management
Establish Sponsor
Form team with key members
Do industry survey of best practices
Document industry & regulatory KPIs
Brainstorming session(s) -do not look at current system
Define & refine 'ultimate' & reasonable KPIs
Prioritize KPIs with Sponsor & team
Break strategic high-priority KPIs into informational KPIs & define
rollup & weights (involve middle management)
Break informational KPIs into operational KPIs & assign weights
Team members & reporting staff
Project mgr., CxO, IT
Project mgr., CxO, IT
High-level data sourcing & possible need for new data capture
Determine development system & presentation system
Define scope, duration & funding for SAP BI project
Duration
2 days
2 days
14 days
7 days
10 days
10 days
3 days
28 days
21 days
7 days
7 days
7 days
Weeks
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10. Use a database to define, maintain and document your work. Give each KPI a
number (i.e. “KPI-252 Sales growth per store per month”). Lotus Notes, SAP
collaboration rooms and similar document handling databases are great tools.
Do not start the project feeling constrained by the current system.
(systems should not drive business strategy!)
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What We’ll Cover …
• Introduction & definitions
• Defining, Prioritizing, & Implementing KPIs
• Core KPIs (sales, finance & supply chain)
• Examples of dashboards, scorecards & cockpits
• Top-10 rules for performance management design &
development roadmap
• development roadmap - operational, managerial &
executive KPIs
• Wrap-up
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7 Key Points to Take Home
• Senior management (CxO level) drives KPI definition projects
• KPI definition is not normally an IT project. The Project manager should
be a respected individual from the business.
• KPIs should be value chain drive, linked to outcomes & statistically
proven relevant.
• The measures should be further divided into strategic, informational &
operational. All KPIs should result in actionable outcomes, but at
different level & time horizons.
• Technology should take a back seat in KPI definitions. SAP have many
great presentation tools & more in arriving with the BOBJ acquisition
(see the dashboard conference sessions for more details).
• Time box your KPI project – don’t get trapped in analysis paralysis
• Involve outside experts from industry to move forward fast.
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Resources
COMERIT (Presentations, tutorials & articles)
www.COMERIT.net
The Performance Mgmt. association- PMA Forum
http://www.som.cranfield.ac.uk/som/research/centres/cbp/index.asp
Key Performance Indicators: Developing,
Implementing, & Using winning KPIs - David
Parmenter
http://www.amazon.com/Key-Performance-Indicators-DevelopingImplementing/dp/0470095881
SAP Accelerator worksheet for KPIs @ SAP Help
help.sap.com/bp_smv2007/SSM_US/Documentation/KPI_Accelerator.xls
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Your Turn!
How to contact me:
Dr. Bjarne Berg
bberg@comerit.net
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