24.4 Select and Define Performance Measures for Each Perspective
Selecting Key Performance Indicators (KPIs)
Choose KPIs that:
- Align with objectives
- Are measurable and reliable
- Provide insight (leading indicators)
- Are actionable (managers can influence)
- Are balanced (not too many metrics)
KPI Selection Criteria
- Relevance: Does the KPI align with strategy?
- Clarity: Is the KPI easy to understand?
- Data Availability: Can we obtain data reliably?
- Timeliness: Can we measure it frequently enough?
- Control: Can managers influence the KPI?
- Balanced: Does the KPI complement other measures?
Defining KPIs
Each KPI should have:
- Name and definition
- Calculation method
- Data source
- Frequency of measurement
- Responsible person/team
- Target value
KPI Examples for Le Petit Bistro
Financial:
- Net profit margin = Net income ÷ Sales
- Cash conversion cycle = Days inventory + Days receivable - Days payable
Customer:
- Customer satisfaction score (survey)
- Repeat customer rate = Repeat customers ÷ Total customers
Internal Process:
- Order accuracy rate = Correct orders ÷ Total orders
- Table turnover time = Time between seatings
Learning & Growth:
- Training hours per employee = Total training hours ÷ Number of employees
- Employee satisfaction index (survey)
Dashboard Design
Present KPIs in dashboards for clarity:
- Use traffic lights (green/yellow/red)
- Include trend charts
- Provide context (target vs. actual)
- Highlight action items
Balanced Scorecard Reporting
- Monthly or quarterly reporting
- Include narrative analysis
- Discuss variances and actions
Luxembourg Compliance Note
Some non-financial KPIs may be required for sustainability reporting (e.g., energy usage, diversity metrics). Banks may request KPIs for loan covenants (e.g., customer concentration, process metrics).
Think It Through
What happens if the organization tracks too many KPIs? How can we avoid information overload?