How many KPIs do I need? (fewer than you think)

June 18, 2017 by ahmed

 

Originally posted on Intrafocus

If there is one thing that we are really good at, it is measuring things. If it moves, measure it. If it doesn’t move, measure how long it stays still. We are convinced that if we can measure it, then we can manage it. And the result? We spend more time measuring than managing. When running a large operation, clearly we need to measure a lot of things, but when we are managing a business, day to day operational measurements become less important. Running a business requires us to measure those things that contribute to our business objectives and ultimately our vision for the future.

We therefore concentrate on Key Performance Indicators (KPIs). The measurements that are key to the performance of our business strategy. So how many KPIs are required? It is here that we often fall into the trap of mixing operational measures with business KPIs. On the whole, operational measures are easy to find or define. For example, on a manufacturing assembly line, it may be important to clock people in and out to ensure they get paid correctly, but the hours they work may or may not be relevant to the business strategy. It all depends on whether or not there is a strategic (or business) objective related to the workforce. At best, hours worked may be a contributor to a KPI.

The number of KPIs is directly related to the number of strategic objectives a company/organisation has. The number of strategic objectives is dependent on the resources and time available to meet the objectives set. Given that just about everyone in a company/organisation has a ‘day-job’, the time left to focus on strategic objectives tends to be small. In a study by Franklin and Covey they talk about the whirlwind of the day job. The whirlwind sucks us into all of the activities that are required to keep the organisation running and leaves no time for anything else.
To put an effective, measurable strategy in place, the number of strategic objectives has to be small. there is a law of diminishing returns:

  • If I plan to do 1-3 things, I will achieve 1-3 things
  • If I plan to do 4-10 things, I might achieve 1 or 2
  • If I plan to do more than 10 things, I will achieve nothing

Simply put, I will fail if I spread myself too thinly. When creating a strategy using the Balanced Scorecard methodology, we look to put no more than three strategic objectives into each of the four perspectives. The rationale being, each perspective will have its own skill base and resource set. At a minimum, each strategic objective will have one KPI associated with it and certainly no more than three. So how many KPIs do I need? At a minimum 12 and at a maximum 36. Follow the rules, tried and tested over 20+ years of usage, and you cannot go wrong.

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