Key Performance Indicators (KPIs) - Design

Good Measure Design

The most important principle of good key performance measure design is that of relevance. What is meant by relevance depends on the type of measure; but, the measure must be directly relevant to the purpose intended.

For example, a sales growth measure is, by itself, not a good measure of market share and is therefore not directly relevant if your objective is expressed in terms of achieving a certain market share.

There are many other principles of good measure design that are worth considering. Unfortunately, this is an extensive topic that we cannot cover in detail here.

Examples of principles are:

• Validity

• Completeness

• Reliability

• Time comparability

• Peer comparability

• Robustness

• Communicability

• Time perspective

• Driver-chain status

• Risks and Rewards

Most organisations have a strong desire to link employee remuneration with performance measures.

This, on the face of it, makes a great deal of sense. We naturally base this on the assumption that this will motivate employees to achieve or exceed performance targets. There is also the sensible financial argument that rewarding employees on any other basis is likely to result in less than optimal financial performance.

However, to rush into such a formal link before the performance measure framework has been well-proven can, and has, resulted in anomalous rewards. These financial reward links have to be carefully considered.