David Parmenter
Key Performance Indicators
Key Performance Indicators
Developing, Implementing, and Using Winning KPIs
Third Edition
DAVID PARMENTER
Cover image: © Boris Lyubner / Getty Images
Cover design: Wiley
Copyright © 2015 by David Parmenter. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
The Second Edition was published by John Wiley & Sons, Inc. in 2010.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions.
Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.
For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002.
Wiley publishes in a variety of print and electronic formats and by print-on-demand. Some material included with standard print versions of this book may not be included in e-books or in print-on-demand. If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com. For more information about Wiley products, visit www.wiley.com.
Library of Congress Cataloging-in-Publication Data
Parmenter, David.
Key performance indicators: developing, implementing, and using winning KPIs / David Parmenter. – Third edition.
1 online resource.
Includes index.
ISBN 978-1-119-01984-8 (pdf) – ISBN 978-1-119-01983-1 (epub) – ISBN 978-1-118-92510-2 (hardback) 1. Performance technology. 2. Performance standards. 3. Organizational effectiveness. I. Title.
HF5549.5.P37
658.4′013–dc23
2014044306
About the Author
DAVID PARMENTER is an international presenter known for his thought-provoking and lively sessions, which have led to substantial change in many organizations. He is a leading expert in the development of winning KPIs, replacing the annual planning process with quarterly rolling planning, and lean finance team practices. His work on KPIs is recognized internationally as a breakthrough in understanding how to make performance measures work. He has delivered workshops to thousands of attendees in 30 countries around the world. Parmenter has worked for Ernst & Young, BP Oil Ltd, Arthur Andersen, and PricewaterhouseCoopers, and is a fellow of the Institute of Chartered Accountants in England and Wales. He is a regular writer for professional and business journals.
He is also the author of Winning CFOs: Implementing and Applying Better Practices, Key Performance Indicators for Government and Non Profit Agencies: Implementing Winning KPIs, and The Leading-Edge Manager's Guide to Success (all from Wiley).
He can be contacted via [email protected]. His website, www.davidparmenter.com, contains many white papers, articles, and freeware that will be useful to readers
Preface
Why This Book Should Interest You
Performance measurement is failing organizations worldwide, whether they are multinationals, government departments, or non-profit agencies. The measures that have been adopted were dreamed up without any linkage to the critical success factors of the organizations. Often these measures are monthly or quarterly. Management reviews them and says, “That was a good quarter” or “That was a bad month.”
Performance measures should help your organization align daily activities to the organization's strategic objectives. This book has been written to assist organization's with developing, implementing, and using winning key performance indicators (KPIs) – those performance measures that will make a profound difference.
Major Benefits of Getting KPIs to Work
The major benefits of performance measures can be grouped and discussed under these three headings:
1. The alignment and linking daily actions to the critical success factors of the organization.
2. Improving performance.
3. Creating wider ownership, empowerment, and fulfillment.
Alignment and Linking Daily Actions to the Critical Success Factors of the Organization
As Exhibit P.1 shows, even though an organization has a strategy, teams are often working in directions very different from the intended course. Performance measures should have been carefully developed from the organization's critical success factors. The critical success factors will help staff align their daily activities with the organization's critical success factors as shown in Exhibit P.2. This behavioral alignment is often the missing link between good and great organizations.
Exhibit P.1 Discord with Strategy
Exhibit P.2 Alignment with Strategy
In his book, Transforming Performance Measurement,1 Dean Spitzer points out that one of the most important roles of management is to communicate expectations to the workforce. He goes on to say people will do what management inspects (measures), not necessarily what management expects. Thus, we need to put in place the right measures. KPIs are the only things that truly link day-to-day performance in the workplace to the organization's critical success factors. Some people think that because the annual planning process comes from a medium-term view (called the development plan in Exhibit P.3), which in turn is linked to the strategic plan, strategy is linked to day-to-day activities. It looks good on paper but never works in practice. Strategy is broad and wide ranging, whereas annual-planning is a dysfunctional silo-based process.