use the term result indicators to reflect the fact that many measures are a summation of more than one team's input. These measures are useful in looking at the combined teamwork but, unfortunately, do not help management fix a problem as it is difficult to pinpoint which teams were responsible for the performance or nonperformance.
Performance indicators, on the other hand, are measures that can be tied to a team or a cluster of teams working closely together for a common purpose. Good or bad performance is now the responsibility of one team. These measures thus give clarity and ownership.
With both these measures some are more important so we use the extra word “key.” Thus we now have two measures for each measure type:
1. Key result indicators (KRIs) give the board an overall summary of how the organization is performing.
2. Result indicators (RIs) tell management how teams are combining to produce results.
3. Performance indicators (PIs) tell management what teams are delivering.
4. Key performance indicators (KPIs) tell management how the organization is performing in their critical success factors and, by monitoring them, management is able to increase performance dramatically.
Many performance measures used by organizations are, therefore, an inappropriate mix of these four types. First I describe each type of measure.
Key Result Indicators
What are key result indicators (KRIs)? KRIs are measures that often have been mistaken for KPIs.
The common characteristic of these measures is that they are the result of many actions carried out by many teams, hence the use of the term “result.” And they are good summary measures, hence the term “key.” They give a clear picture of whether your organization is traveling in the right direction at the right speed. They provide the board or governing body with a good overview as to progress with regard to the organization's strategy. These measures are easy to ascertain and are frequently reported already to the board or governing body.
The fact that key result indicators are called KPIs creates a problem that many organizations do not appreciate. They cannot understand why performance ebbs and flows and appears outside the control of the senior management team. These key result indicators that are reviewed typically on monthly or quarterly cycles will only tell you whether the horse has bolted or not. Key result indicators are thus of little use to management as they are reported too late to change direction, nor do they tell you what you need to do to improve these results.
You know you have a KRI when the CEO is in reality the person ultimately responsible for the measure.
For the private sector, key result indicators would include:
● Net profit before tax
● Net profit on key product lines
● Customer satisfaction (by customer group, showing the trend over an 18-month period)
● Return on capital employed
● Employee satisfaction (by groups showing the trend over an 18-month period)
For government and nonprofit agencies these measures would also include:
● Availability of the major services we offered e.g., average waiting time for service
● On-time implementation of infrastructure projects
● Membership numbers (for professional organizations)
Separating KRIs from other measures has a profound impact on reporting, resulting in a separation of performance measures into those impacting governance and those impacting management. Accordingly, an organization should have a governance report (ideally in a dashboard format), consisting of up to 10 KRIs for the board, and a series of management reports reporting progress in various intervals during the month depending on the significance of the measure.
Result Indicators
The result indicators (RIs) summarize the activity of more than one team. They are good to review as an overview of how teams are working together. The difference between a key result indicator and a result indicator is simply that the key result indicator is a more overall and more important summary of activities that have taken place.
When you look at a financial measure you will note that you have put a value to various activities that have taken place. In other words, financial indicators are a result of activities. I thus believe all financial performance measures are RIs. Daily or weekly sales analysis is a very useful summary, but it is a result of the effort of a number of teams: from the sales team to the teams involved in manufacture, quality assurance, and dispatch. Financial indicators are useful but mask the real drivers of the performance. To fully understand what to increase or decrease, we need to look at the activities that created the financial indicator.
Result indicators look at activity over a wider time horizon. They not only measure quarterly and monthly results but also weekly, daily activities and future planned events (e.g., sales made yesterday, number of planned initiatives to be implemented next month to improve the timeliness of planes).
For the private sector, result indicators that lie beneath KRIs could include:
● Sales made yesterday
● Number of initiatives implemented from the recent customer-satisfaction survey
● Number of initiatives implemented from the staff survey
● Number of employees' suggestions implemented in the past 30 days
● In-house courses scheduled to be held within three weeks where attendee numbers are below target
● Number of managers who have not attended leadership training (reported quarterly, by manager level)
● Number of staff trained to use specified systems (key systems only)
For government and nonprofit agencies, result indicators would also include:
● Weekly hospital bed utilization
● Percent coverage of [Enterprise Name]'s supported services
● Number of people on treatment/tested for [Disease Name 1], [Disease Name 2], and for [Disease Name 3]
● Grants achieving their public health targets as per grant agreements
● Percentage of investments covering low income, high disease-burdened countries
Performance Indicators
Performance indicators (PIs) are those indicators that are nonfinancial (otherwise they would be result indicators) that can be traced back to a team. The difference between performance indicators and KPIs is that the latter are deemed fundamental to the organization's wellbeing. Performance indicators, although important, are thus not crucial to the business. The performance indicators help teams to align themselves with their organization's strategy. Performance indicators complement the KPIs; they are shown on the organization, division, department, and team scorecards.
For the private sector, performance indicators that lie beneath KRIs could include:
