How many types of KPI are there

It seems the Holy Grail for scorecards and dashboards seems to be organizations seeking to answer, “What should our key performance indicators (KPIs) be?” At the heart of selecting KPIs should be their linkage to the executive team’s strategy. However, there are different stakeholders in an organization, such as internal managers and investor governance boards. Each stakeholder has different needs. Hence there should be different types of KPIs for different purposes.

Performance measures reported in scorecards and dashboards is one of the core components of integrated enterprise and corporate performance management (EPM/CPM) rivaling in importance other improvement methods such as customer relationship management and managerial accounting. Regardless of the type of KPI, analytics (such as segmentation, correlation, regression, forecasting, and clustering) should ideally be imbedded in each method, and they are critical for employees to achieve and exceed KPI targets.

Author Brett Knowles, founder of the consulting firm PM2 and a veteran of the balanced scorecard thought leader community, has given much thought to the topic of different KPIs for different purposes. In Volume 4, Number 6 of his firm’s Performance Measurement &Management newsletter, Brett describes different types of KPIs in an article titled “Five Distinct Views of Scorecards – and Their Implications.” With Mr. Knowles permission, here they are abbreviated with my minor edits:

1. Financial Valuation– A scorecard view is needed to describe what the organization does in a way that the financial world can understand: monetary currency (e.g., dollars, Euros). All activities need to be financially valued, including tangible assets (e.g., buildings and inventories) and intangible assets (e.g., brand equity, employee retention, and customer loyalty). Several methodologies exist that grapple with this need, including economic value added (EVA) and activity-based costing (ABC).

The challenge is that more than 80% of value is created by intangible assets, yet traditional accounting systems do not do a good job of capturing intangibles. The balanced scorecard has proven to be a great tool for making the intangible assets visible and valuable.

Information in this area needs to be:

  • Centered on outputs, outcomes or deliverables,
  • Closely related to existing valuation mechanisms,
  • Standard, repeatable and reliable.

2. Navigation– Internal managers need to make informed decisions on a frequent basis that are consistent with the medium- and long-term strategy. Strategy, cascaded downward into the organization through a strategic balanced scorecard and into operational dashboards, dictates both what should be done and how important it is. This view of performance measures creates alignment of employees’ actions and priorities across all functional and regional boundaries and consistency across time. This is where the EPM/CPM methods with imbedded analytics play a critical role.

Information in this area needs to be:

  • Very responsive to shifts in the work activities,
  • Process based,
  • Related to overall effectiveness and efficiency.

3. Incentive Compensation– Scorecard frameworks lend themselves to rewarding employees for contributing to the success of the organization. Over-performers should be distinguished from under-performers. A key to this view is for the executive team to assign aggressive yet achievable target measures.

Information in this area needs to be:

  • Related to the value that the team can control and create,
  • Output and outcome related,
  • Accurately measurable and repeatable across locations and time.

4. Benchmarking– An effective way to determine whether an organization is making progress is to compare it to other “things” (“comparatives”). There are many comparatives available: competitors, best-in-class, world-class. In the true sense, even target, forecast and revised-forecast are all comparatives too.

The challenge with the benchmark view of scorecards is that the data is sparse and with “dirty” quality. Also, there can be apples-and-oranges inconsistencies (e.g., including or excluding data, measuring different start-and-end times of processes). Comparatives do not typically go into enough detail to provide operational insights into diagnosing any identified issues and root causes, nor do they cover the full breadth of the executive team’s strategy.

Information in this area needs to be:

  • Available from other sources,
  • Understandable and relatively comparable,
  • Strategically related to the organization.

5. Evaluation– Periodically, there is the need to get an accurate measurement of how the organization is performing. Periodically the organization needs to undertake such activities as customer surveys, employee surveys, supplier assessments, etc.

These activities are too expensive and time consuming to be conducted often enough to be useful for navigation, but can be used to underpin selection and validation of navigation indicators, support incentive compensation models and be used in reporting performance to outside stakeholders.

Information in this area needs to be:

  • Survey based,
  • Comprehensive and rigorous,
  • Closely related to overall deliverables.

Brett summarizes his five views by stating that most organizations need to consider their organization’s performance in two or more of these views. For example, a shared service IT department may need to prove and measure its contribution to the organization’s overall valuation, provide monthly navigational information for the project managers (and service level agreements [SLAs] for their internal customers), and develop a compensation package for use around the globe. They may also need to compare themselves to industry benchmarks.

The various and numerous stakeholders need to initially develop some confidence that the scorecard model adequately describes their view of the organization. Consider building the various views as a way to speed implementation of a pilot scorecard. A simple way to do this is to create a single enterprise-wide strategy map, but link different indicators to it for each of the views.

My feeling is Brett is on to something important. As I have previously written there is confusion and lack of consensus as to what a balanced scorecard is. There is ambiguity. Further many organizations neglect to first construct a strategy map from which to derive its KPIs. A strategy map is orders of magnitude more important than its companion balanced scorecards and cascaded operational dashboards. They are simply feedback mechanisms.

Understanding that there are multiple scorecard views can bring clarification.

By Gary Cokins, from:

Gary Cokins is an internationally recognized expert, speaker, and author in advanced cost management and performance improvement systems. He is the founder of Analytics-Based Performance Management LLC at in Cary, North Carolina. His career: First ten years as an executive with a division executive with FMC Corporation; next fifteen years in consulting with Deloitte, KPMG, and EDS; and last fifteen years as  a Principal Consultant with SAS, a leading provider of business intelligence and analytics software. See Gary’s articles on EPM Channel here.


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