Kpi company. How to calculate the degree of completion of KPI

Hello! In this article we will talk about the KPI system.

Today you will learn:

1. What is a KPI?
2. How to calculate this indicator.
3. How to implement a KPI system in an enterprise.
4. On the pros and cons of this system.

What is KPI in simple words

Kpi   - this is a coefficient that determines the effectiveness of a particular enterprise: how well it functions, whether it achieves its goals.

The decoding of this abbreviation is as follows - Key Performance Indicators, which is usually translated into Russian as "key performance indicators."

Translated literally, the word "key" means "key", "significant", "indicators" - "indicators", "indicators", but with the word "performance" there are difficulties in the translation, since it is difficult to interpret it unambiguously. There is a standard that gives the most correct translation of this word, dividing it into two terms: efficiency and effectiveness. Efficiency shows how the money spent and the results achieved are correlated, and the effectiveness - to what extent the company managed to achieve the result that was planned.

Consequently, KPI is more correctly translated as “a key indicator of the result of an activity”. In simple terms, so to speak, for dummies, you can see that this system helps to figure out what measures need to be taken to improve efficiency. Efficiency, however, covers all actions performed within a specified time period, as well as the benefits received by the enterprise from each individual employee.

KPI indicators are as follows:

• KPI performance   - shows the ratio of spent money and time resources with the achieved result;
• KPI Cost   - shows how much resources are involved;
• KPI result   - illustrates the result obtained during the execution of tasks.

Because this system is not easy to implement, you should adhere to certain rules and principles that can become indispensable assistants when switching to KPI:

1. The rule is "10/80/10". It states that a company should identify 10 key performance indicators, 80 production indicators, and 10 performance indicators. It is not recommended to use much more KPI indicators, because this is fraught with overloading managers with unnecessary unnecessary work, and managers will certainly be concerned with finding out the reasons for the failure to perform indicators that have little effect on performance in general.
2. Alignment of performance indicators and strategic plan.   Indicators of production activity are irrelevant if they are not correlated with the current critical success factors (KFU), combined into a balanced scorecard (BSC), and.
3. Manageability and controllability.   Each division of the company, which is responsible for its indicator, needs to provide resources for its management. The result should be monitored.
4. Integration of performance evaluation, reporting and productivity improvement processes.   It is necessary to introduce a procedure for evaluating indicators and reporting, which will push employees to the required specific actions. For this purpose, reporting meetings should be held to consider the issue being resolved.
5. Partnership   In order to improve productivity unsuccessfully, it is worthwhile to ensure partnerships between all employees involved. Therefore, the way to introduce a new system must be developed together. This will allow everyone to understand the advantages of innovations, as well as to make sure that changes are necessary.
6. Transferring efforts to the main areas.   In order to increase productivity, it is necessary to expand the powers of specialists: help in, offer to develop their own KPIs, provide training.

How to calculate KPI

Paragraph 1.    To calculate KPI, it is necessary to choose from three to five performance indicators, which will be the criteria for evaluating a specialist. For example, for an internet marketer, they might be:

1. The number of site visitors attracted by a specialist.
2. A figure that shows how many purchases have been made by customers who have previously contacted the company.
3. The number of commendable recommendations, customer feedback on social networks or on the organization’s website after the purchase of a product or service.

1. new customers - 0.5;
2. buyers who made a reorder - 0.25;
3. positive recommendations - 0.25.

Point 3.    Now you need to analyze the data for all selected indicators over the past six months and make a plan:

Point 4.    The next stage is the calculation of KPI indicators in Excell. You must use the KPI calculation formula: KPI Index \u003d Weight KPI * Actual / Purpose.

Here, the goal is the indicator that the employee must achieve according to the plan, and the fact is what he has gained in reality. The final figure is 113.70%, this is a good result, however, if you look at the table in more detail, you can see that the marketer did not fully meet the planned standards.

Item 5.   We calculate wages. We will be based on the fact that the total earnings of the marketer are $ 800, of which the permanent part (salary) is $ 560, and the variable (premium) is $ 240. For a one hundred percent index, an employee is entitled to a salary and a full bonus, but due to the plan being exceeded, the marketer will receive additional bonuses in the amount of 13.7% of the bonus part, that is $ 32.88. As a result, the employee’s salary will be $ 560 + $ 240 + $ 32.88 \u003d $ 832.88.

But when an employee does not fulfill the plan, and its efficiency indicator is below 99%, then the size of the bonus is proportionally reduced.

With the help of such calculations and compiling a table, you can see the problems and difficulties faced by the Internet marketer.

Low indicators may be due to the fact that the plan is not drawn up correctly or the strategy for increasing loyalty is incorrect. The problem area needs to be controlled, and if things do not improve over time, then the change in performance indicators will be the correct way out.

Thanks to this approach, an understanding of the principle of action of KPI is formed. Focusing on goals, the calculation can be supplemented with new values. This can be a system of fines, the number of solved and unsolved problems, and much more. For example, if the work on the plan is done by less than 70%, the employee will not receive a bonus at all.

There is still an alternative way to calculate salaries relative to the percentage of the plan:

KPI in practice

A KPI performance indicator is used by almost all direct selling companies. Let's look at some examples for a sales manager. Having adopted the approved key indicators, he will see a clear picture of his activity: he will understand how much goods need to be sold in order to reach a certain income, which ones.

For an insurance consultant who is new to his profession, the best indicator of effectiveness would be 1/10: to sell one insurance policy, you need to meet with 10 potential buyers.

There is also a KPI of the result, for example, “the number of new customers is not lower than n”, “the sales volume is not lower than n”, etc. These indicators are personal, and it is better when their number is less than 5, and most importantly - they should be easily measurable and clearly articulated.

In addition to motivating employees, company executives use KPI as a tool to analyze the work of their subordinates.

This system allows you to clearly see the gaps in activity and at what stage they occurred. For example, a boss keeps track of a manager’s client base, how many calls and appointments an employee makes. If these indicators are carried out in sufficient volume, but there are few sales, we can conclude that the employee does not have certain knowledge, skills or personal qualities for successful work.

KPI and enterprise planning

KPI indicators can be used in planning and monitoring activities. After the work has been done, the actual indicators are measured, and if they seriously deviate from the planned not for the better, then an analysis and adjustment of further activities is carried out. Since all indicators are “dictated” by the real process, and not invented independently, such planning will help achieve the organization’s necessary goals.

How to motivate staff to perform KPI

Thanks to the use of the KPI system, planned and actual indicators are fixed during remuneration. This gives the manager a clear understanding of how to motivate the employee and for what. At the same time, the employee also clearly sees the pros and cons of his work and realizes what actions can bring him reward, and for what the penalty is due.

For example, an insurance consultant sold more insurance policies than planned and expanded its client base with many new clients. Thus, he overfulfilled the plan and in addition to his salary will receive a bonus in the form of a bonus. On the other hand, if the same manager sold policies much less than what was planned by the plan, he might lose his prize altogether and get a “bare” salary, because his personal indicators will be low.

However, motivating employees is not just about money.

For the performance of indicators you can reward with interesting trainings paid by the company, unscheduled weekends, gifts and other “gingerbread cookies” that will inspire the employee no worse than money. But in this case, the employee’s salary is always fixed, and according to the KPI system, points are calculated that the employee can exchange for the desired bonuses.

To draw up KPI for employees, you need to focus on a common goal for all employees and strong motivation. Work in a team of interested specialists as a clockwork mechanism can quickly lead a company to achieve all its goals.

In which cases KPI is not needed

In a young company, which has just begun its existence, introducing a KPI system is impractical. The management system has not yet been formed, and successful development is due to the work of the CEO. Most often, he also performs the functions of specialists in finance and human resources.

And also it is not worth introducing KPI in those divisions, which because of this can adversely affect other departments of the company. For example, an IT-service, whose representatives must solve the problems posed to them (repair of office equipment) as soon as possible. It happens so that one of the employees had a computer out of order, and the work stopped, and the whole department depends on the work of this employee.

If the IT specialist’s salary is calculated using the KPI system, then he won’t go to work immediately. First you need to make a request to fix the breakdown. This application must be approved by a senior specialist in the IT department, after which the task is put in the queue for implementation and awaits consideration.

As a result, a task requiring 5 minutes to complete takes much more time, during which the work of the entire department where one computer broke down does not move at all.

That is why it is useful to implement the KPI system wisely, otherwise it can do much harm.

Errors in implementing KPI

The most common mistake is to introduce KPI for statistics alone.

Ultimately, it turns out that the indicators of one unit have no connection with the indicators of another.

For example, the supply service of one enterprise needed to reduce costs. Therefore, in order to receive raw materials at a discount, workers purchased it in large volumes, and also purchased defective goods. This led to overcrowding of warehouses, freezing of finance in raw materials, which blocked all the advantages.

Meanwhile, the production department had its own priority indicator - the load factor of production equipment. To use time efficiently, employees produced large quantities of certain products in order to save valuable minutes on the conversion of machines. But the fulfillment of the sales plan by the sales department inevitably suffered from this, because the necessary assortment was missing, and at a specific time interval the client could purchase only one type of product.

As a result, there was a situation where everyone pulls a blanket over himself, and nobody reaches the goal. The result came to naught, and all the work was done in vain.

Another common mistake is to focus attention solely on material indicators that are the result: sales level, income, etc. However, only when the key indicators are not financial, but proactive in nature, it is possible to achieve goals much more effectively.

For example, how many calls does a sales manager have to make, how many meetings to hold, how many contracts to make in order to achieve the same resulting KPI? It is on the basis of such non-financial factors that a system of employee motivation should be built, and financial managers should be guided directly by departments.

And also a serious mistake will be a situation when the persons responsible for a particular indicator are not indicated. For example, the incentive procedure does not imply bonus payments or their reduction by the manager for fulfilling or not fulfilling the plan. In this case, the boss cannot be responsible for the actions of his subordinates, because he has no way to influence them.

Pros and Cons of KPI Implementation

Work on the KPI system has many advantages:

• It is established that in companies with such a system, employees work 20-30% more efficiently.
• Specialists will clearly understand what tasks are of primary importance and how to accomplish them.
• With a well-implemented system of indicators, the control of the company’s activities is greatly facilitated, so that problems are detected already at the stage of their occurrence and resolved before they harm.
• When calculating wages, the principle of justice applies: those who have worked diligently receive more. This allows the organization to retain valuable personnel.
• The payroll becomes a means of motivating staff, and not the main source of expenses.

The KPI system also has disadvantages. First of all, the minus is that a lot of time and effort is spent on implementation, because all the indicators need to be worked out in detail. Most likely, it will be necessary to retrain employees, explain to them information about changing working conditions and new tasks.

However, the main disadvantage is that the effectiveness in the end is not always evaluated correctly. This can be avoided if, at the stage of development of the system, the criteria for the evaluation of the boiling point are perfectly formed.

Recently, the scope of application has been expanded for the procedure for assessing employee productivity — it has begun to be applied not only to top managers. Evaluation of key performance indicators (KPI of employees) has ceased to be a hallmark of foreign companies; practical examples can be found in various industries and for a wide variety of categories of employees from marketers and business analysts to financiers and economists.

The assessment of managers by competencies is carried out by Alexey Shirokopoyas, Expert on the development and assessment of managerial competencies. Developer of training and game programs. The founder of the project. 8-926-210-84-19. [email protected]

As a rule, KPI-based incentive systems measure key performance indicators (KPIs of employees) because they are based on SMART criteria. Therefore, such motivation systems are convenient for applying to employees working in profit centers where there are objective, and most importantly, measurable criteria: sales volumes, financial key performance indicators (KPI of employees), terms, etc., and work based on SMART -goals and objectives, has a specific result. However, not all types of work can have such goals and objectives. For example, how to evaluate the process activities (not involving the achievement of a specific result), where there are no SMART tasks and those who are “distant” from the economic and operational processes of the company, “clerks”: secretary, call center operator, support service system administrator, HR clerk, accountant, personnel officer, etc.? These employees (back office) perform routine functions, and, unlike the work of managers, the work of “clerks” is difficult to evaluate. How to evaluate the quality side of the work of this category of personnel?

Key Performance Indicators (KPIs for employees) - what should I look for?

In this case, it is necessary to evaluate the performance of functions. To a large extent, this is only a qualitative assessment, and, as you know, a qualitative assessment is an expert assessment. The technique proposed in the article helps to evaluate labor precisely from this side.

Each manager appreciates in his employees the ability to perform work quickly and efficiently. And laments when these requirements are not met. Often he has to put up with this and hope that he will someday find a better employee, but with the new employee everything is repeated. Why it happens? To answer this question, we delve into the nature of the parameters under consideration and their relationship.

What is the "speed of work"? From physics, we know that speed is the ratio of the volume of work to the time it is completed. So, the manager evaluates his employee in three ways: the amount of work, the time it takes to complete, and the quality of the work.

Thus, any activity can be evaluated by three key performance indicators (KPI of employees), we will call them the “triad of efficiency” (see the appendix):

1. Amount of work   - the rate of development, the share of excess production, additional orders in excess of the job description, etc.
2. Quality of work   - technology compliance, error-free, lack of customer complaints, marriage, etc.
3. Deadline   - compliance with the deadline, early implementation, exceeding deadlines, etc.

Moreover, each leader can decide for himself what work he evaluates:

• the number of operations by the job function (for example, the function of the lawyer is the preparation of contracts, and the number of contracts is the number of operations in this function);
• the scope of functions beyond the norm, which is determined by the job description (for example, a lawyer according to the norm must process at least 100 contracts per month);
• solving additional tasks, instructions of the head in addition to job functions (projects, one-time tasks, etc.).

However, it’s not so easy to “reconcile” work speed and quality. Indeed, one can make sure that it is easy to implement only any two parameters of the “triad” and it is difficult to make sure that all tasks are completed on time, efficiently and in the right amount. Such a system is difficult to balance - and this is the responsibility of the leader.

Most often, the work is done efficiently and on time, but perhaps this will not be the entire amount of work. Often, an employee manages to complete all tasks, but either with a decrease in the quality of some of them, or with a violation of the deadlines.

And you can completely forget about the expectations of the early completion of all tasks while maintaining excellent quality. Moreover, managers are accustomed to seeing in the employee’s ability to carry out an increased volume of tasks ahead of schedule and with excellent quality signs of his insufficient workload, rather than giftedness. Is this the reason for the modern talent trend of the “talent search”? The dream of employers about the so-called talents is the dream of employees who are able to consistently fulfill these three criteria in full. Agree, there are not so many of them.

Accounting for tasks and functions in itself is a creative affair. They have different significance, which means they must be of different weights. In addition, all key performance indicators (KPI of employees) can have their weight in the system (see table. 1), which is determined by the head based on current tasks, labor characteristics, etc., thereby highlighting what is most important. For example, timing is important for the selection department, and quality is important for accounting.

The final grade is calculated as the weighted average of the grades. This is the sum of the valuation products for each of the key performance indicators (KPI of employees) and its weight:

35% x 3 + 40% x 4 + 25% x 1 \u003d 1.05 +1.6 + 0.25 \u003d 2.9 (with a maximum of 4 points)
  or
  35% x 75% + 40% x 100% + 25% x 25% \u003d 26.25% + 40% + 6.25% \u003d 72.5%

The second option for calculating the final score of this technique is given in the appendix.

It is worth repeating: naturally, such assessments sin with subjectivism. If the amount of work can be determined, and the timing can be measured, then the quality (in the absence of specialized measurements, for example, the number of customer complaints or the results of the assessment carried out using the "mystery shopper" technology) is assessed subjectively.

Key performance indicators (KPI of employees) - what increases the objectivity of the methodology?

Firstly,   evaluation criteria are formulated in a special way. This was not accidental: after a month, the manager cannot always remember in detail what deadlines were violated and how many cases the employee completed with the proper quality. However, he developed a general, holistic picture of the work of a subordinate, written in "large strokes." The same “large strokes” he is invited to draw a “portrait of the effectiveness” of the employee.

Secondly, the objectivity of the methodology increases the practice of its application. More than a decade of experience using the methodology shows that efficiency is high when it is filled by both the manager and the employee himself. Then they discuss the results, and this makes important sense:

• the employee remembers his tasks better, and the manager can forget, confuse something, because he has several subordinates;
• the manager has his own view on quality issues, but it is common for the employee to forgive minor “sins”;
• the manager is often inclined to consider the violation of deadlines as a low quality work, confusing these concepts, and the employee can be proud of the high-quality performance of work, while neglecting the value of meeting deadlines or volume.

Thirdly, due to the indicated effects, both parties strive to reach an agreement, which, as satirists have formulated, is “a product of the non-resistance of the parties”. Since the main practical application of this method is the ability to regulate the monthly or quarterly premium (see Table 2), this circumstance makes the technique valuable, since an agreement leads to justice, and this is more important than the accuracy of measurements, and motivates more than mathematically accurate and sometimes anonymized scoring.

Fourth, the objectivity of the methodology is enhanced by the “economies of scale” if applied in all divisions of the company. This effect makes it possible to compare the result with objective data, and this is another powerful verification criterion and a source of correction of results. So, a senior manager, having received a complete picture of company ratings (a set of performance evaluations of managers working in profit centers and employee cost center employee performance evaluations), can compare it with financial and other objective key employee performance indicators (KPI employees) of the organization’s effectiveness in whole. It may turn out that the overall assessment of all employees using the “Triad of Efficiency” methodology will be overestimated in comparison with the objective key performance indicators (KPI of employees) of the organization. Then the employer has the right to introduce a correction when paying bonuses.

From table 2 it can be seen that Danilin’s employee had a vacation in February, and in accordance with the company’s policy, no bonus was awarded for this time. Shirokova has a tendency to increase efficiency. Other workers have reduced efficiency.

Please note: even 50% of the plan can be rewarded, especially since at the same time three key performance indicators (KPI of employees) of the triad are difficult to achieve, and two out of three due to the resource of the third one can be high. In this regard, any number less than 50% is also a definite achievement.

Key performance indicators (KPI employees) - systematic application of the method

The method can be applied cascadingly (when higher-ranking employees evaluate lower-level employees), throughout the organization and regardless of whether employees have “objective key performance indicators (KPIs of employees)” or not. The cascading application of the method gives the assessment a systematic and additional objectivity, especially when it comes to calculating premiums.

And if, moreover, the method has been used for a long time, then it acquires a number of useful properties. Consider them.

1. A higher manager, evaluating a lower one, at the same time evaluates the activities of his unit: after all, the results of the leader’s work are composed of both his personal efforts and the efforts of his subordinates. The advantage of this method is that the superior is able to compare data and draw conclusions about the effectiveness of the leader and his subordinates, the unit as a whole, and even about the management style.

So, the figure shows that the subordinates of the head of department 1 have different skills (“mini-diagrams” clearly show this): the engineer works slowly, but efficiently, the specialist quickly, but not enough. A superior manager evaluates the work of the chief, and therefore of the entire department 1, as follows: the unit solves a large volume of tasks with average quality and with some violation of the deadlines. A general analysis of the work of the entire department shows that the head has an additional scope of tasks - in addition to those that are solved by his subordinates, and this can indicate problems with delegation. In addition, the activities of the boss somehow “worsen” the quality of the engineer’s work and “slow down” the work of the specialist. As a result, the terms and quality of the department are no higher than average. The head of the head of department 1, perhaps, should think about its effectiveness as a manager.

  The head of department 2 works quickly, but gives out “on the mountain” less work than his subordinate. Leading specialist slowly performs a large amount of work. This means that this boss takes on those tasks that can be solved quickly, while the quality of his work cannot be called low. Obviously, everything is in order with delegation, quality of work and meeting deadlines, and therefore with responsibility.

1. Analysis of performance dynamics over time. You can see if the employee’s efficiency increases during the trial period or decreases over the years. The most visual picture is created by comparing the dynamics of performance evaluations with other factors. So, in addition to comparing the efficiency level with the vacation period shown in Table 2, you can see signs of the coming “burnout”, which are especially noticeable against the background of constant motivation, a drop or increase in efficiency associated with a change in leadership, the impact of corporate news on the productivity of workers or departments and etc.
2. Analysis of the work style of an individual employee: a comparison of the various parameters of the “triad” will show areas of its effectiveness and inefficiency. For example, one is always fast, but not high enough, and the other - quickly and efficiently solves only part of the tasks. This gives rise to recommendations for the use of workers: the first should be put on the site where speed is needed, and with respect to the second, one should also understand his motivation and interests in solving specific problems.
3. Comparison of employee ratings allows us to judge their usefulness for the organization, and a comparison of the estimates of heads of departments - to make a rating of departments and managers. So, according to the results of the year, it is possible to calculate the average or total annual estimates and determine who is more productive and who is less and due to what factors: who is the “fastest” employee, who is the most “thorough”, who at the same time performs a larger number of tasks. At the same time, the content of labor and the employee’s belonging to one or another unit do not play a role.

So, despite the obvious subjectivity of the “Triad of Efficiency” method, its useful properties are obvious:

• the method is applicable to all posts, regardless of whether they are managerial or executive;
• employee performance assessments can be accumulated and compared;
• accumulating estimates, you can track the dynamics of individual employees and even units, monitor the onset of “burnout”, draw conclusions about their strengths and weaknesses;
• comparing the estimates of subordinates with the ratings of the head, we can draw conclusions about the management style, identify inefficiency zones in units;
• due to the standard approach, the technique is easily implemented in document management systems (Lotus Notes, MS Outlook, etc.) and ERP (based on Oracle, SAP, Microsoft, etc.), widely used in the corporate world;
• the method can become an addition or a general format for existing systems for assessing the effectiveness and efficiency of MBO, key performance indicators (KPI of employees), bring their data to a single presentation.

And most importantly - this is not another “exact tool”, but a way to mediate the dialogue of the leader with his subordinate on the issue of remuneration. After all, nothing so reduces the motivation of an employee as a lack of recognition and understanding of development paths. In such a dialogue, the employee can understand what his boss is dissatisfied with and what he pays attention to. In other words, the method gives motivation a very important managerial effect - feedback to the subordinate about his work.

  should be counted on to diagnose corporate problems. Key performance indicators of the employee allow timely measures to improve the efficiency of his work.

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You will learn:

• What are the pros and cons of the KPI system.
• Which employees should not implement KPI.
• Which KPIs to install for the supervisor.
• What to do if employees sabotage the implementation of KPI.
• How to revise the KPI system.

What is a KPI system?

KPI is a special indicator system, using which employers can evaluate the performance of subordinates. At the same time, KPI - the key indicators of each employee - are tied to general business indicators (level of profitability, profitability, capitalization).

Materials for download:

KPI distinguishes different goals, but the main one is to create a situation in the company in which employees from various departments could act together, without contradicting their business actions to each other. The activity of one specialist should not interfere with the work of another or slow it down. All employees must strive for a common goal and work effectively, receiving bonuses for this.

It is believed that KPIs are directly related to BSC (Balanced Scorecard - Balanced Scorecard), but this is not so. The creators of BSC did not use the term KPI. They used the concept of “measure,” “measure,” or measure.

KPI and BSC are indirectly related. BSC is endowed with the prospect of business processes where there are related goals. To measure the extent to which these goals have been achieved, specialists use KPI business process metrics.

Materials for download:

So what is KPI in simple words? These are specific indicators that make it much easier to understand what actions should be performed to increase efficiency. At the same time, efficiency is not only the number of manipulations carried out over a certain time period, but also the benefit that the company received from the work of a single specialist.

KPI companies are common. However, in units they are divided into small, called personal. There can not be many. 3-5 clearly defined and understandable indicators are enough. The basic requirement is the ability to simply and quickly measure them.

Here are some examples of KPI . Possible KPIs for the sales manager are: “The sales volume is not lower ...”, “The number of new customers is not less ...”, “The amount of the average customer contract is approximately ...”, “The level of English proficiency is not lower ...”.

Another example of KPI. You are the owner of a large outlet selling household appliances. 12 managers work for you. How effectively each of them works during the month is evaluated based on the following indicators:

• how many people the manager spoke with bought technology (in percent);
• the amount of the average check;
• how much the sales plan has been fulfilled (for example, the amount of the minimum bar monthly is 350 thousand rubles; the percentage of the plan overfulfillment will affect the manager’s salary).

For example, you need to sell mixers of a certain brand and manufacturer. In this case, it makes sense to set a plan for each manager with a minimum number of mixers equal to 5. If the manager sells equipment more than the planned number, then he receives 3% of the cost from each “extra” mixer. This is an excellent motivation for specialists, KPI of this type allows you to successfully sell products. Experience shows that the optimal number of KPI criteria for one specialist is from 5 to 8.

3 interesting facts about KPI

• Key Performance Indicators in the West has been used for over 40 years. In the CIS countries and Russia, it has been used for about 15 years.
• In a number of countries (Korea, Singapore, Hong Kong, Japan, Malaysia, Germany and the USA), the Key Performance Indicators system is a national idea. KPI there is not just a concept, but the basis of the work of all companies.
• Russian President Vladimir Putin has proposed the creation of a Key Performance Indicators system to evaluate how officials work.

How to avoid mistakes when implementing KPI

The editorial board of the magazine “General Director” reviewed 6 popular errors in the KPI system and gave advice on how to avoid them.

Where does the development of KPI begin?

KPI should be created “from top to bottom”, starting with the large-scale goals of the company to the tasks facing an individual employee. To fully solve the problems, it is necessary that all personnel be involved in the preparation of the KPI system. We are talking about employees working in the planning, economic, financial, specialists in managing the organization of labor activity, the staff of human resources, sales, technology departments.

To get started, an organization needs to figure out which KPI is a priority. To do this, the company clarifies and verifies strategic and operational goals. Ideally, the statement of the goal should be such that it does not clearly indicate the financial component as the main indicator. It is better if the financial indicator flows from the main task. With this approach, the company will be able to feel confident in a crisis period.

It is necessary to connect the target with the market environment, changes in the market. For example, a company can set itself the goal of becoming one of the TOP-3 in the market for its products or taking leadership positions in a certain territory. After the main goal is formulated, subgoals are highlighted.

After setting goals, it is necessary to analyze how efficiently the company is working now and how it solves actual problems. At the same time, it is necessary to determine how the salaries of employees will be calculated.

When creating a KPI in an enterprise, it is important to budget personnel costs. In this case, it is divided by type of payment. In addition, it is required to take into account salary indexation and career growth of specialists.

At the final stage of development, they create provisions, prepare KPI cards, write down what method to calculate each key indicator for, and coordinate the system with the management of all independent units in the company.

The provision on KPI should include information on the goals and objectives that the system pursues:

• Improving results and increasing the efficiency of specialists. Development and implementation of employee motivation.
• Increasing company profitability. The development of goals and performance indicators for each position in the departments and divisions of the company.
• Creation of an information base that will allow you to make the right management decisions. Providing efficient collection of information and control over the functioning of the system.

Key performance indicators and their types

Key KPIs include:

• late, reflecting the results of work at the end of the term. We are talking about financial KPI, indicating the company's potential. However, such factors cannot show how efficiently the departments and the organization as a whole work;
• operational (leading), which allow you to manage the state of affairs during the reporting period to achieve your goals at its completion. Operational performance indicators help to understand how things are now at the enterprise, and, along with this, demonstrate financial results in the future. On the basis of operational KPIs, one can also judge how well the processes are proceeding, whether the products are good, and how satisfied customers (consumers) are.

Basic conditions - indicators should contribute to the implementation of intermediate and final goals, and all indicators can be quickly and easily calculated. The coefficients are different - qualitative (in the form of a rating or points) and quantitative (in the form of time, money, volume of production, number of people, etc.).

KPI Examples

KPI for a technical support employee. A specialist of this profile should advise those who are the real buyer, and help potential customers. The KPI set in this case is small. The employee’s work is evaluated on the basis of how well he consults, in what quantity, whether customers are satisfied with the service.

Key performance indicators for a sales manager. The number of new customers should not be lower than a certain mark, the volume of sales is not less than the established limit, the size of the average customer contract within the specified boundaries, English proficiency at one or another level.

The KPI system consists of a number of indicators, but they are universal:

• Process ones, which testify to what result the process brought, how requests from consumers are processed, how new products are created and displayed in the market environment.
• Client: how satisfied customers are, how they interact with sales markets, how many customers were able to attract.
• Financial allow us to judge the foreign economic situation of the enterprise. Here we are talking about the level of profitability, turnover, market value of products, financial flow.
• Development criteria show how dynamic the company is. This is the degree of productivity of specialists, the level of staff turnover, the costs of each employee, the motivation of employees.
• Environmental indicators: how the price fluctuates, what is the level of competition, what is the pricing policy on the market. These indicators must certainly be taken into account when creating KPIs.

How to calculate KPI

Stage 1.The selection of three key indicators of effective specialist performance:

• the number of users who were able to attract to the site;
• the number of repeat orders from existing customers;
• the number of recommendations and positive reviews that appeared after purchasing a product or ordering a service on the website and social networks of a trade organization.

Stage 2.Determination of the weight of each indicator. The weight in the total amount is 1. Moreover, the largest share belongs to the priority indicator. As a result:

• the number of new customers is allocated 0.5;
• the number of repeat orders - 0.25;
• reviews - 0.25.

Stage 3.Analysis of statistics for the past six months for each KPI and development of a plan:

Stage 4.Calculation of KPI. An example is presented in this table:

KPI calculation formula: KPI Index \u003d KPI Weight * Actual / Purpose

At the same time, the goal is the planned indicator of the marketer. Fact is the real result.

It becomes clear that the specialist has not reached his goals. However, based on a total of 113.7%, we can say with confidence that the real result is quite good.

Stage 5.Payroll preparation.

In total, $ 800 is due to the marketer, $ 560 of which is the fixed part, and $ 240 is the variable. A full salary is paid to a specialist for an index equal to 1 (or 100%). Thus, an indicator of 113.7% indicates an overfulfillment of the plan, which means that a salary is paid out to the marketer with an additional bonus.

Result:

560$ + 240$ + 32,88$ = 832,88$.

If the KPI is less than 99%, the bonus amount is reduced.

Such a table allows you to see the problems in the work of the marketer, the difficulties with which he can not cope. Possibly, insufficiently good results can be caused by the wrong strategy to increase customer loyalty. However, it is possible that initially the plan itself was illiterate. In any case, the situation needs to be controlled. If things do not improve in the future, review the performance requirements.

If you adhere to such a policy, you will find out what KPIs are in the process of production, sales, etc. You better understand what the calculation of indicators should be and the process of their implementation itself.

The calculation can be modified taking into account the planned results, supplemented with new values: an indicator of the number of solved and unresolved problems, a system of fines for poor performance on key points in the plan.

So, for the implementation of the plan less than 70% of the employee may not receive a bonus at all.

There is the following scheme for calculating the bonus part of the salary for the specialist who has completed the sales plan:

Implementation of KPI in the company

Both employees and third-party consultants can be responsible for the implementation process of the KPI system created by the company. At the same time, one should take into account what specific features of the enterprise, how business processes flow in it, what goals and objectives the company sets for itself. It is imperative that ordinary staff be aware of how the wage system will change. Report to employees that the level of their effectiveness will be the main indicator. With the introduction of the KPI system, specialists should be trained. Staff should understand that change is primarily useful to them. The implementation of the system implies the development of special documentation: employment contracts, staffing, collective agreement and other papers related to the payment of employees.

Before introducing the KPI system, test it through a pilot project. Take 1-2 departments and work in pilot mode in them new processes and the formation of wages. In the ratio of fixed and premium components of payment, you can make adjustments in real time, taking into account target indicators for specific groups of personnel.

When the new order in the company is tested and completely adjusted, you can enter it in other departments. Remember that it is better not to implement a KPI system without testing. Within the framework of the pilot project, it will be possible to clearly understand what difficulties the system causes for staff, to learn about possible shortcomings and to quickly eliminate them. All specialists of the enterprise must work towards a common goal. Otherwise, employees will only feel discomfort, and all actions and aspirations will be in vain.

In the process of introducing KPI in the company, make sure that the indicators can be adjusted if the need arises. Thanks to the constant monitoring of indicators, it will be possible to adapt in time to changes in the market environment and edit the working strategy. In addition, the model for the formation of bonuses should be improved every year, that is, optimized. As part of the optimization, the evaluated indicators are changing to other, more relevant for certain employees and departments.

What KPIs to install for a manager

KPI staff and management should be connected with the main tasks of the enterprise. You need to know exactly what you want to achieve after a certain period. You can strive to get ahead of competing companies and become a leader in your industry. Another option - the head of the company wants to sell the business at a bargain price. KPI for the first case - an increase in the customer base and sales volumes, for the second - an increase in the capital of the company and the achievement of maximum sales value.

The main goal must be written down and formalized, and then divided into subgoals. When specialists successfully complete the sub-goals, they come closer to solving the main task of the enterprise.

When it comes to a large organization or holding, a director KPI is required for each division and branch. If the owner of a large enterprise plans to compare the performance indicators of CEOs that are geographically remote from each other, the development of a unified evaluation system is required. It should be remembered that those KPIs that are easy to achieve in large regions are not always easy to achieve in small ones. In this regard, the system can be formulated in approximately the same way, but the numbers of indicators should be different for leaders in different regions.

When preparing the KPI, try to set the indicators in the optimal amount so that the employee can easily monitor the effectiveness of the work. Better if there are five KPIs. When installing more indicators, the director may be inattentive to the main ones and focus on the minor ones.

When a KPI system for leadership is created, a combination of general and personal indicators is optimal. General indicators are the results of the department in the subordination of a specialist. Based on general indicators, it becomes clear how the team works, how much the leader is interested in solving the tasks. Personal indicators are the individually achieved goals and results of activities.

If the KPI system is well-created, the coefficients show how each of the managers works, and this information is useful for the company.

Almost all company executives use KPI performance indicators today. But does everyone know the definition of KPI reduction? The abbreviation is as follows - Key Performance Indicators. The literal translation from English gives us the following interpretation: key performance indicators (KPI). A slightly different interpretation has taken root in Russian practice: KPIs are key performance indicators of an enterprise, but the essence of this, in any case, does not change.

  The KPI program is a “measuring device” that evaluates certain results of a company, department or specific employee. They show how set goals have been achieved. In general, the following characteristics are evaluated by KPI indicators:

• beneficial effect- the main task, for which, in fact, the work is done. This includes: net profit, sales, revenue, production, company market share, customer base, customer satisfaction, organization reputation, and much more.
• A side effect is unwanted results that often go alongside the ones you want. For example, any kind of debt, staff turnover, etc.
• Resource costs   - this is absolutely all the costs that went into achieving the goal.
• Time spent   - how long it took to complete the job.
• The ratio of the beneficial effect to the cost of resources / time is an objective assessment of the beneficial effect. It is in this indicator that KPI characterize effectiveness, others they describe the effectiveness.

What indicators can relate to KPI indicators

Practice has shown that the KPI system performs well in large retail with a large branch network. It’s easier for managers of the main office to evaluate the work of the company, comparing the work of units according to schedules in a single coordinate system, see the risks, reduce them and make forecasts. But in small business, the system works no worse, but it may be a little more difficult to develop it correctly.

The number of KPI indicators can be any, the main thing is the easy calculation of KPI, and it is also important that they really characterize the implementation of intermediate and final goals.

To assess the effectiveness and efficiency, the following can be distinguished:

• volume of sales- estimated cash flow from sales, for example, for a month;
• staff turnover   in% - the ratio of the number of laid-off workers to the average number of employees;
• compliance with service standards - It is also measured as a percentage based on data from mystery shoppers.

The most common indicators are highlighted here. Depending on the specifics of the organization, you can use any else.

Rules and principles of implementation, development of KPI indicators in the organization

Several methods have been developed to identify the optimal number of KPI indicators. But experience says that it’s better to stick to the 10/80/10 rule. It says that there should be 10 key indicators of the result, indicators of operational (production) activity - 80 and about 10 performance indicators.

Main principle   when implementing KPI is considered the principle of controllability and controllability.   This means that the employee or department that is responsible for the high result of the indicator should be allocated everything necessary to manage it. As a result, the result should be measurable and controllable.

In addition to the main principle, there are additional ones that also help the correct construction and operation of the KPI system:

Examples of calculating KPI indicators

  Probably, every leader sooner or later asks the question: “how to calculate KPI?” Guided by these provisions, you can come up with a lot of indicators. However, one must remember that each of the KPIs should characterize one of the goals. When developing KPI indicators for employees, it will be logical to build on their own tasks arising from a common strategic goal. For example, the work of a manager can be evaluated by such parameters as “Sales growth from new customers”, “Customer satisfaction”, etc.

KPI directors will be a little more complicated. The system of criteria should contain long-term indicators. For example, “An expansion of the organization’s staff by 50% per year”, profit also refers to the universal characteristics of efficiency, even director’s efficiency.

In any case, the KPI of any business unit is required to meet certain conditions:

1. A limited number of options.   It should not exceed 10, and 5 criteria are considered optimal.
2. Consistency   None of the indicators should interfere with the execution of the other. For example, it would be wrong for the sales department to request “increasing the number of new customers”, but ordering “reduce advertising costs”.
3. Monitoring performance indicators.

KPI employees and directors

Building a KPI system for staff is subject to general principles and rules. The selected criteria should be:

• measurable;
• specific;
• realistic
• agreed upon;
• defined in time.

Advantages and disadvantages of implementing the KPI system

Like any innovation in the company, the introduction of KPI indicators has its pros and cons, well-wishers and opponents.

Advantages:

• Often, employees who influence the financial and economic condition of the company are satisfied with the implementation of the system. With the introduction of KPIs, they are usually encouraged to do better work, for which they are often encouraged to increase salaries.
• Each employee has a clearly defined work area.
• The employee clearly sees the personal contribution to the common cause to achieve the main goals. It is very important.
• Awareness of managers about the work of each department and each employee and its full control.

Disadvantages:

• It often happens that the good work of one of the colleagues is not visible against the background of the general unsatisfactory work of his entire department. It may happen that he will remain out of work. Exhausted and exhausted by persistent, but invaluable work, the employee can quit.
• Some posts will remain outside the bonus system from achieving good KPIs, because they do not directly affect them. As a result, they will be unhappy from this. For example, if the overall goal is connected with net profit, then secretaries, accountants, economists and a number of others simply will not even be able to try to prove themselves somehow.
• Sometimes the KPI incentive system does not imply bonuses for good work, but fines or deprementation for not fulfilling the plan. That is, if the desired level of the indicator is achieved, then you get the usual salary, and if suddenly this was not possible, then the punishment will begin. This boosts the working atmosphere.

We also bring to your attention a video that details the example of working with KPI indicators.

What is a KPI matrix?

To evaluate employees by KPI, create a goal agreement for each person or the so-called “KPI matrix”. Include in this matrix four to five of the most important performance indicators for ordinary employees and six to seven for middle and senior managers.

These indicators must be selected, observing the middle ground between the interests of the employer and employees. To do this, include in the matrix for each employee all the main indicators, the implementation of which will lead to the expected business result, while their description and meaning should be clear to the employees.

It is also necessary to comply with all the criteria for quality KPIs, for more details about which see the KPI System.

What is the KPI matrix development algorithm

To develop a matrix, you must:

• select indicators for a specific position from the KPI library;
• determine the weight of each indicator;
• determine the acceptable values \u200b\u200bof the indicator;
• calculate the KPI index;
• digitize quality KPI;
• evaluate employee performance.

How to choose KPI options

Choose key performance indicators from the KPI library of posts that will help you to fully evaluate the employee’s contribution in the coming month (quarter) to the implementation of business goals. Determine the composition of these indicators, taking into account the specifics of the current situation in the organization and unit, as well as the characteristics of the tasks that employees will have to solve during the reporting period.

At the same time, part of the indicators for a particular post can be constant, and part is periodically updated. This is due to the fact that the tasks of the organization, unit and position change periodically and this must be taken into account in the criteria for evaluating work.

In any case, the composition of the indicators should be balanced and include both quantitative and qualitative indicators, which allow you to do a deep analysis of the result of work, and indicators that will allow you to take into account team and individual contributions to the overall result of the activity.

Moreover, there are such positions for which it is difficult to select quantitative indicators. In these cases, evaluate the results of work solely on quality KPI.

Description of species and examples of KPI, see the table.

How to determine the weight of KPI

After the indicators have been selected, determine the weight of each. By weight is meant the coefficient of relative importance of the indicator, which allows you to take into account the priorities in the employee’s work based on the current priorities of the unit and the organization as a whole. Weight can be estimated as a percentage, but it’s more convenient to immediately translate the values \u200b\u200binto a number from zero to one, this will simplify the future calculation. It is recommended to set the weight value not higher than 0.5 and not lower than 0.1.

The sum of the weights of all indicators must be equal to one, that is, if four indicators are selected for the position, the sum of these four weights is equal to one

How to normalize KPI

When the weight of the indicators was determined, carry out their normalization. To do this, determine the base, regulatory and target levels of each indicator. Where:

• basic level - the worst acceptable indicator value. If the value of the indicator is worse than the base, then this creates a threat to the activities of the organization or unit and is completely unacceptable. This indicator is a “zero” point, starting from which the result of work is counted. An indicator below the baseline indicates a complete lack of result. For example, a sales manager can set a minimum sales volume. All that is less is a zero result;
• a normative or planned level is what the employee must fulfill in order for the organization to work normally and achieve its goals. If the values \u200b\u200bof the indicator are worse than the norm, this means that the employee does not fulfill his function. At the same time, the normative value of qualitative results should be unambiguously used so that employees understand what kind of results their internal clients expect from them: the head, colleagues from related departments and others;
• target level - the excess value that you want to strive for. In some cases, the target may be the norm. But if it is possible to set a target level better than the norm, then do it. At the same time, it is recommended to set goals at a level no higher than 20–25 percent of the norm, taking into account the base. If the goal is “overestimated” in comparison with the norm, this means that either the goal will be unattainable or the standard is underestimated and must be reviewed.

For example, for the sales manager of Alpha, the manager chose one of the quantitative KPIs “Sales.” The following values \u200b\u200bhave been set for this KPI:

• basic level - 100 thousand rubles;
• normative level - 500 thousand rubles;
• target level - 800 thousand rubles.

The results of the normalization of this and other KPIs were entered into the table, which was issued in an arbitrary form.

How to evaluate quality KPIs

Assessment of quality indicators is given by the internal clients of the employee and, first of all, his manager. The basis of the analysis is the quality of the employee for the reporting period. For example, for the Alfa sales manager, the manager set a high-quality KPI “Internal Customer Satisfaction”, that is, the satisfaction of employees in related departments, whose work depends on the quality of interaction with the evaluator. The value of this KPI was taken from the survey result.

To calculate the overall result of an employee’s assessment, the value of any quality indicators must be converted to points. To do this, use a 100-point scale. The distribution of points in this scale by level depending on the indicator, approach to assessment and management requirements. For example, the scale may look like:

• unacceptable result - from 0 to 20 points;
• weak - from 21 to 40 points;
• mediocre - from 41 to 60 points;
• good - from 61 to 80 points;
• excellent - from 81 to 100 points.

And in order to normalize qualitative indicators by analogy with quantitative ones, establish “reference points”. For example, for the sales manager, they set the base - from 0 to 20, the norm - from 40 to 60, the goal - from 80 to 100 points. These indicators were entered into the table with the KPI matrix.

How to determine the KPI index

The next step in the development of the KPI matrix is \u200b\u200bto calculate the KPI index. The index shows the percentage degree of fulfillment or overfulfillment of the norm and is calculated by the formula:

The purpose of the indices is to translate KPI values, which are measured in different scales and units, into a single metric scale (in percent). This approach allows you to compare among themselves the results of work on different indicators and calculate the overall employee productivity coefficient.

For example, for a sales manager taking into account actual sales - 600 thousand rubles, base - 100 thousand rubles. and norms - 500 thousand rubles. the index for KPI "Sales" is equal to:

index “Sales volume” \u003d (600 - 100): (500 - 100) × 100% \u003d 125%.

If the KPI is above 100 percent, the norm (plan) for this indicator has been exceeded. In this case, the KPI falls into the green (allowed) zone. If the KPI is below 100 percent, the norm is not met. At the same time, the indicator falls into the yellow zone if the KPI exceeds 80 percent. Otherwise, this indicator falls into the “red” (forbidden) zone.

How to make an overall performance assessment

When the digital values \u200b\u200bof all KPIs are determined, find the weighted average result of the employee’s work over the past period, taking into account all KPIs and their weights. To do this, calculate the percent performance ratio.

To this end, multiply the values \u200b\u200bof all KPIs by the weights of the corresponding indicators and find the total amount.

If the ratio is more than 100% (norm), this is an indicator of the employee’s high performance. If less, then the employee works worse than the management requires of him. How much worse - find out by comparing the value of the coefficient of effectiveness with the established acceptable values. In this case, the permissible value is established by the direct manager of the unit assessed on the basis of the work plan, development strategy, in consultation with the senior management

How to familiarize the employee with the matrix

After all the stages of development of the matrix are implemented and the table is prepared, present this information to the employee. Discuss with him the meaning of all indicators. This must be done at the beginning of the reporting period, during which this method of labor assessment will be used. Thus, the employee will know the tasks for the coming period, the criteria for evaluating his result and will be able to build the most effective work system.

To fix KPI matrices for each position in the organization’s regulatory documents, see KPI System.

Commercial KPI Matrix Example

At Alpha, sales professionals are evaluated on five individual metrics. Of these, three indicators are quantitative (sales volume, cash flow, overdue receivables) and two are qualitative (internal customer satisfaction, teamwork in work). Moreover, one of these indicators - “Overdue receivables” is negative, and the rest are positive.

After evaluating the weights of the indicators, basic, normative and target values \u200b\u200bwere established. After a month, the actual results were evaluated, the KPI indices and the employee productivity coefficient were calculated:

Sales \u003d (600 - 100): (500 - 100) × 100% \u003d 125%.

Cash inflow \u003d (370 - 150): (400 - 150) × 100% \u003d 88%.

Overdue DZ \u003d (250 - 800): (300 - 800) × 100% \u003d 110%.

Satisfaction of internal customers \u003d (70 - 0): (80 - 0) × 100% \u003d 87.5%.

Teamwork in work \u003d (60 - 0): (80 - 0) × 100% \u003d 75%.

Performance coefficient \u003d 125 × 0.3 + 88 × 0.25 + 110 × 0.2 + 87.5 × 0.15 + 75 × 0.10 \u003d 102.13%.

The data were summarized in a KPI matrix, arranged in a tabular form in an arbitrary form.

As a result, according to two indicators: sales volume and overdue receivables - the norm is exceeded. As a result, these KPIs have indices higher than 100 percent (“green zone”). The allowed (permissible) values \u200b\u200bof indicators fall into this zone.

For the remaining three KPIs: cash inflows, internal customer satisfaction, and teamwork at work, the norm has not been met. For these indicators, two options are possible:

• if the index is in the range from 80 to 100 percent, then the indicator is in the "yellow zone". These are unauthorized but warning indicators;
• if the KPI is less than 80 percent, then the indicator falls into the red zone. This color corresponds to the prohibited values \u200b\u200bof indicators. In general, the border between the “red” and “yellow” zones can be set independently for each KPI.

Thus, in the “yellow zone” were indicators “Cash flow” (88%) and “Satisfaction of internal customers” (87.5%), and in the “red zone” were the indicator “Teamwork at work” (KPI \u003d 75 %).

Accordingly, this employee, in the opinion of his manager, paid too much attention to personal results and did not interact effectively with colleagues in his unit. This fact, as well as the positive results of the work, were discussed with the employee in a meeting format for monthly feedback.