Agenda
• Measurement system terminology
• Salient attributes of a good metric
• SMART test for ensuring metric relevance to business
• Supply chain associated with the metric
• Fact-based decision making and KPIs
• Few sample KPIs used by Human Resource (HR)
division
• Mapping metrics to business phases
Measurement System Terminology
Data – It is a collection of facts which have similar attributes or characteristics.
“Phone number” is a named collection of, say, mobile phone numbers of
your friends.
Email IDs is an example of collection of Email Ids of your classmate
Measure – Data with associated unit of
measure (UOM) is typically termed as measure.
“Lab hours per month” has a numeric data associated with “time duration”.
“Average wait time for bill payment” is a measure derived out of multiple
data points
Metric – It is a system of measures based on standard UOM with a business
context.
The term business metric also refers to the same.
“Product defect rate” by city is an example of measuring “what percentage
of goods was returned by customers in different cities”.
“Employee attrition rate” by quarter measures the percentage of employee
leaving the company within each three month period.
.
Measurement System Terminology
.
Indicator – It is a business metric used to track business results
or success/performance.
“Call drop frequency” for mobile phone users is an indicator of user
dissatisfaction.
“Earning per share” indicates the increased investor interest.
Index – It consists of a composite set of indicators used to address the overall
health of
business operations.
“Customer satisfaction index” measured on a scale of 1 to 5.
“Market Performance index” measured using standard stock market
scale.
Measurement System Terminology
A metric data when properly defined includes four
components: Subject and Stratum are descriptive in nature i.e.
qualitative Quantum and Application are quantitative in nature
• Subject – This measure is about a customer, a product, a supplier, an
employee, etc.
• Quantum – It is the value of the measure, such as cost,
frequency, duration, amount, etc.
• Stratum – It is the grouping consideration expressed like By Location,
By
Quarter, By Customer, etc.
• Application – Value compared with similar measurements like previous
month, forecast, target, etc.
Example
“Cell phones” cost in “Asia Region” is INR 45,000 against target
of INR 30,000
Subject: Product (Cell Phone)
Quantum: actual cost (INR
45,000 ) Stratum: Region (Asia)
Application: comparison with
Target (INR 30,000 )
• Target and actual cost must have
same unit of measure i.e INR
Few Salient Attributes of a Good Metric
Metric Attribute Remarks Example
Name Metric should be assigned a simple, easy- 1. eLearning Training Days
to-remember name. Do not include codes, 2. Average Lines of Code
long words, and unit of measure.
Abbreviation Short form used inside the organization. eTD/ ALOC in above cases.
Description Provide explanation to help users eLearning Days – Total number of full-time
understand more contexts and comprehend days equivalent spent in training using
the metric unambiguously. online course delivery system. Users may
log-in any number of times and duration of
each session is captured in minutes.
Unit of Measure The commonly measured base unit needs to In the eLearning example, the unit is
be included. “Minutes”.
(For data capture)
Scale Commonly reported granularity of unit of In the eLearning example as the data
measure. We need to capture the conversion storage granularity is “Days”, the scale is
formula. Simple multiples like 1000 (K) or “minutes/(60 * 8)” assuming 8 hours is a
M (Million) are commonly used. standard training day.
Metric Owner Position/department responsible and The training support manager in the training
accountable for the metric department could be an owner.
Few Salient Attributes of a Good Metric
Metric Attribute Remarks Example
Frequency Indicates how often the metrics will be In the eLearning example, it could be
measured “Month”, i.e. every month the metric is
consolidated
Priority Department priority in terms of its value High/Low/Medium can be used
Data Values Actual represent current period captured
Target value
Actual Target represents planned value
The lowest and highest value represents
range
Target description What is definition of normal achievement? Continuous learning is critical. 22 working
What constitute high performance? days is good target.
What is the escalation threshold?
Formula How to compute metric and exception? For permanent staff
Month=22 working days
Deduct leave days
Include holidays
Trusted Data The IT application that has trusted data Learning Management System (LMS)
Source value
SMART Test for Ensuring Metric Relevance to Business
Test Test Focus
Specific Metric is clearly defined, articulated, and understood by all
stakeholders, and is triggering action.
Measurable Someone in the organization must have the ability/instrumentation to
accurately, easily and regularly measure the actual value at reasonable
cost and technology. Think if a clinical thermometer would cost USD
1000!!
Attainable There will be no metric without target. This target may be stretched but
must be attainable with the current level of people efforts and
processes. Speed by cycle can’t be enhanced to 300 kmph no matter
whatever be the technology used!
Result- The metric must motivate team members performing the work. In
oriented businesses results are crucial.
Time-bound All actual values of metrics should be traceable to the date/time when
the actual value measurement was taken. The instrument used for
measurement also has a key role in sampling, accuracy, speed and
correctness that can be verified in other ways.
Supply Chain Associated with Metrics
Component of Measurement Supply Chain Contribution
Entities to be measured Includes employee, vendor, product, customer,
asset, expense category, sales promotion, service
feedback…
Instrumentation Measurement data, data capture and storage in
raw form
Raw material Reference data, definitions, benchmarks, limits …
Sub-assemblies Measures with unit, format, storage
structure, archives…
Product Business metrics approved, communicated
and measured, verified and analyzed with rigor
Metrics Delivery Reports, dashboards, scoreboards, alerts,
Flash updates
Supply Chain Associated with Metrics
Component of Measurement Supply Chain Contribution
Business Activity Areas Plan review, tracking project progress,
(Decisions/Actions) sales campaign analysis, profit
forecast
Business Application Budget control, quality improvement,
innovation projects
Business Value Business results meeting and
exceeding plan
Example: Think of electrical energy meter or water meter installed at your home
Component of Measurement Supply Chain Contribution
Entities to be measured Energy consumption or Water consumption
Instrumentation Energy or Water meter instrument
Raw material --
Sub-assemblies The amount of energy consumed, added tax,
adjustment of advance, calculation of late fee and
arriving at net bill amount
Product Business metrics approved, communicated
and measured, verified and analyzed with rigor
Metrics Delivery Reports, dashboards, scoreboards, alerts,
Flash updates
Supply Chain Associated with Metrics
Component of Measurement Supply Chain Contribution
Business Activity Areas Plan review, tracking project progress,
(Decisions/Actions) sales campaign analysis, profit
forecast
Business Application Solar water heater or rain water
harvesting to support energy or water
conservation
Business Value Business results meeting and
exceeding plan
Fact Based Decision Making and KPIs
KPIs are objective, measurable attributes of business performance, which
assist in informed decision-making.
KPIs should be:
– Relevance and functionality – The KPIs chosen should be directly related to
business results that the company is trying to produce in the specific business
function. Like, your body temperature measurement can only indicate whether
you have fever or not, but can say nothing about your blood pressure!
– Understandable – Chosen KPIs must be defined unambiguously. A KPI needs to
be understood in one and only one way by all stakeholders. It must be
documented, and its definition must be easily accessible to all users.
– Reliability and Credibility – The value of KPIs needs to be authentic and
should be validated as “trusted” or “dependable”. Someone is going to base an
important decision on the chosen metric. Adequate checks are needed to declare
data as trustworthy. This also means that the data must represent the “single
version of truth”.
– Abuse-proof – An abuse-proof measure is unlikely to be used against intended
purpose or individual(s) involved in the measurement process.
Few Sample KPIs Used by the Human Resources Division
• Average time to recruit.
• Average open time of job positions.
• No. of responses to open job positions.
• No. of interviews to fill up open job positions.
• No. of offers that were made.
• No. of responses to the offers made.
• % of vacancies that were filled within x time.
• % of new employees that remained after x
time.
• % of new employee satisfaction rate.
Answer a Quick Question
How would you aggregate KPIs for selecting sports teams for tournaments
at college, state, regional, national and international levels?
Answer a Quick Question
You are the owner of a retail chain. You wish to enhance the productivity
of your store’s employees. What metrics will you define to achieve this
objective?
Mapping Metrics to Business Phases
Summary please…
Ask a few participants of the learning program to summarize the
lecture.
