An Introduction to Key Performance Indicators (KPIs)
Facility management deals with the management of built assets and incorporates controlling services necessary for the successful business operation of an organization. It should aim not only at simply reducing the operating expenses of an organization but also at enhancing the efficiency of the facility and its users as well. The physical environment has a major influence on the successful operation and efficiency of an organization; modifying this could lead to an organization’s desired efficiency being achieved. To gauge the effectiveness of facility management, therefore, it is necessary to reach an understanding of the current conditions of the facility and to postulate changes in facility management practices in order to achieve the desired performance. Poor facility management could result in an inadequate functioning of the facility which may also result in a lack of contribution to the organization’s mission, cost efficiencies, inadequacy, and general unavailability of facilities. On the other hand, a strong facility management approach provides needed support to the organization’s mission, the realization of future facility requirements, greater cost efficiency, and the ability to anticipate the results of current management decisions. We must therefore establish a process for ensuring that facility management provides a positive contributory effect to the business.
Performance measurement could be considered a key to calibrating the effectiveness of a built facility. Effective performance measurement is vital to an organization as it provides much-needed direction to management for decision making. Performance measurement extends opportunities to review past and present functioning and to derive future strategies for the successful operation of the organization and the fulfilment of its strategic goals.
Major facility performance measurement practices include benchmarking, a balanced scorecard approach, post-occupancy evaluation, and measurement through metrics of key performance indicators (KPIs). Consequently, it is important to identify a set of KPIs to establish effective performance evaluation metrics for the facility under consideration.
KPIs refer to a set of quantifiable measurements used to gauge a company’s short, medium and long-term performance. They specifically help determine a company's strategic, financial, and operational achievements, especially compared to other businesses within the same sector.
KPIs are the critical (key) indicators of progress toward an intended result. KPIs provide a focus for strategic, tactical and operational improvement, they create an analytical basis for decision making and help focus attention on what matters most.
Peter Drucker famously said, “What gets measured gets done.”
Eminent features of KPIs
- Measure a company's success versus a set of targets, objectives, or industry peers, aiding in the optimisation of the quality of work done within.
- Can be financial, including net profit (or the bottom line, gross profit margin), revenues minus certain expenses, or the current ratio (liquidity and cash availability).
- Customer-focused KPIs generally centre on per-customer efficiency, customer satisfaction, and customer retention.
- Process-focused KPIs aim to measure and monitor operational performance across the organization.
- Generally speaking, businesses measure and track KPIs through business analytics software and reporting tools.
Managing with the use of KPIs includes setting targets (the desired level of performance) and tracking progress against that target. Managing with KPIs often means working to improve leading indicators that will later drive lagging benefits. Leading indicators are precursors of future success; lagging indicators show how successful the organization was at achieving results in the past.
Terminology example -
Let’s say someone wants to use KPIs to help them lose weight. Their actual weight is a lagging indicator, as it indicates past success, and the number of calories they eat per day is a leading indicator, as it predicts future success. If the person weighs 250 lbs / 113 kg (a historical trend is called a baseline), and a person they would like to emulate is 185 lbs / 84 kg (comparison research is called benchmarking), they might set a 1,700 calorie-per-day target (desired level of performance) for the leading KPI to reach their lagging KPI target of 185 lbs / 84 kg by the end of a year.
- Provide objective evidence of progress towards achieving the desired result.
- Measure what is intended to be measured to help inform better decision making.
- Offer a comparison that gauges the degree of performance change over time.
- Can track efficiency, effectiveness, quality, timeliness, governance, compliance, behaviours, economics, project performance, personnel performance or resource utilization
- Are balanced between leading and lagging indicators
The relative business intelligence value of a set of measurements is greatly improved when the organization understands how various metrics are used and how different types of measures contribute to the picture of how the organization is doing.
Categorisation of KPIs
- Inputs measure attributes (amount, type, quality) of resources consumed in processes that produce outputs
- Process or activity measures focus on how the efficiency, quality, or consistency of specific processes used to produce a specific output; they can also measure controls on that process, such as the tools/equipment used or process training
- Outputs are result measures that indicate how much work is done and define what is produced
- Outcomes focus on accomplishments or impacts and are classified as Intermediate Outcomes, such as customer brand awareness (a direct result of, say, marketing or communications outputs), or End Outcomes, such as customer retention or sales (that are driven by the increased brand awareness)
- Project measures answer questions about the status of deliverables and milestone progress related to important projects or initiatives
Terminology Example -
Let’s say a business provides coffee for catered events. Some inputs include the coffee (suppliers, quality, storage, etc.), the water, and the time (in hours or employee costs) that my business invests. The process measures could relate to coffee making procedures or equipment efficiency or consistency. Outputs would focus on the coffee itself (taste, temperature, strength, style, presentation, accessories, etc.). And desired outcomes would likely focus on customer satisfaction and sales. Project measures would focus on the deliverables from any major improvement projects or initiatives, such as a new marketing campaign.
Every organization needs both strategic and operational measures, and some typically already exist. Figure 1 depicts strategic, operational and other measures as described further.
Strategic Measures track progress toward strategic goals, focusing on intended/desired results of the End Outcome or Intermediate Outcome. When using a balanced scorecard, these strategic measures are used to evaluate the organization’s progress in achieving its Strategic Objectives depicted in each of the following four balanced scorecard perspectives:
- Internal Processes
- Organizational Capacity
- Operational Measures, which are focused on operations and tactics, and designed to inform better decisions around the day-to-day product/service delivery or other operational functions
- Project Measures, which are focused on project progress and effectiveness
- Risk Measures are focused on the risk factors that can threaten our success
- Employee Measures, which are focused on the human behaviour, skills, or performance needed to execute strategy
- An entire family of measures, including those from each of these categories, can be used to help understand how effective strategy is being executed.
Some drawbacks of using KPIs
- In some cases, the long time frame required for KPIs to provide meaningful data
- They require constant monitoring and close management to be useful
- They open up the possibility for managers to "game" KPIs
- Quality tends to drop when managers are hyperfocused on productivity KPIs
- Employees can be pushed too hard aiming specifically for KPIs
- KPIs not being SMART in nature
Quantifying the performance through KPIs helps in optimising, adding quality and enhancing the efficiency with which the work is being done in an organisation, keeping in mind the available , financial and property assets. Another advantage is that it allows the implementation of "Business intelligence" principles with the key purpose to convert company data into well-structured, analysable insights or real business intelligence that informs strategic decision-making. At the heart of intelligent decision-making is having a single, centralised depository that pulls together data from all your business activities and customer interactions.
Great Business Intelligence is having access to all business data in a single unified place with a dashboard that includes data from different areas such as sales, finance and inventory control to provide a holistic view of the business, its customers and their interactions with the business. This means that business decisions are based on facts and qualified data rather than assumptions or conjecture.
The establishment system of measuring performance using an intricate system of KPIs should be a critical strategic goal of any organisation which will ultimately lead to good business intelligence and practices. The valuable information that KPIs provide, enables managers and business owners to optimise planning and react quickly and efficiently across all decision-making processes.
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- Performance Indicators - Wikipedia
- Lavy, Sarel & Garcia, John & Dixit, Manish. (2010). Establishment of KPIs for facility performance measurement: Review of literature. Facilities. 28. 10.1108/02632771011057189.
- Moss, Qi & Nelson, Margaret-Mary & Alexander, Keith. (2008). An FM performance measurement case study.