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How to Establish Key Performance Measures (KPM) for a Business Process?

Updated on July 15, 2014
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In our earlier articles we talked about Business Process Management and Business Process Mapping. The next step logical step is to establish what we call as the Key Performance Indicators (KPIs) or Key Performance Measures (KPM)to monitor the effective performance of the process.

Without a means of measurement, we will not know if a particular process is useful at all, leave alone effective. That is the reason we need to establish KPIs. The next obvious question is how do we build a KPI? The answer to the question is that any process should have either a Time or Cost implication. So our KPIs should revolve around these parameters. Of course, there would other parameters like Profit, Count, Speed, Distance etc. but all of them would be related to our primary parameters - Time or Cost.

Process - Cab Driver

Let’s take an example of a Cab Driver. The process that he would follow each day would be something like.

  1. Check the oil level, fuel level, tire pressure and general cleanliness of the car.
  2. Star the ignition and let it run in idle speed for one minute
  3. Go to the cab stop
  4. Pick up passengers
  5. Drop the passengers at the desired destination
  6. Collect the appropriate charges
  7. Pick up the next available passenger
  8. 8. Go back to step 4 and continue

Establishing Key Performance Indicators

Well, now how do we set up KPIs for the above process? Simple check the time and cost implication. From point 6, we know that this process gets paid immediately and therefore, the next question to ask is - How can I maximize the revenue (charges collected)? There can be two answers to this. One is that the Cab Driver can pick up passengers going long distance only and therefore higher charges or the second possibility is that he can increase the number of passengers being picked and dropped. Now answer one is not under the driver’s control. That is he cannot possibly identify long distance travelling passenger just like that but he can control the number of passengers being picked up and dropped. So, that sounds like a good KPI. We introduce the KPI called “Count”. We say that the cab driver should at least pick up and drop 20 passengers.

Freezing the KPI

Now what can come in the way of the cab driver achieving this target? The time lost when the cab is going empty or when the driver is doing things other than driving people around. For example, the driver needs to break for lunch; he needs to check the car’s running condition in the day (point 1 of the process), etc. Can we reduce these times? Sound possible, but it would be counter – productive to reduce the time over here. Why? There only two essential parameters to ensure that the count of 20 passengers is achieved and that is - the driver and the car – and therefore, any activity done to replenish, refresh or refuel them should not be hurried. They have to be given sufficient time for these activities, so we will not mess with these parameters. It then appears that we have got one KPI which has a direct impact on the Cost (Revenue) and Time.

The KPI therefore is – “The cab driver should ensure that he services at least 20 passengers in a day”. The word “at least” means the driver can achieve over and above 20,but a bare minimum of 20 is essential. Since this process works day in and day out for 365 days, we need to compensate for the well-being of the car and the driver. So, parameters like regular maintenance of the car, at least once a month, can be added. For the driver, regular health checks can be added. Mind you, the day when the maintenance of the car or the health check of the driver happens, the target of 20 may not be achieved,but that is fine.

Without the presence of the KPI for achieving a count of 20, the driver has no target or no goal in a day and hence the efficiency or effectiveness of the process will depend entirely on the motivation or achievement orientation of the driver. Since high performers are a minority in our community, it becomes necessary to establish a performance level for any process. The high achievers, of course, will achieve way above the target but then the lesser mortals will not be left way behind. Hope this article was helpful in assessing the need and ways to establish Key Performance Indicators.

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