PDNetno.8858CoombesPaul-LNGoodmanRobert-CPSeawardJulian-LNWarringtt)nStephen-LNKeyPerformanceIndicators(KPI)-AWorkingGuideDate:08/92Sector:insmanceCenter:OrgtizationPerformancePracticeDocType:PDDOCKeywords:ManagementPlanning/DecisionSystemsUse:InternalOnlyContact:Theobjectiveofthisdocumentistoprovideteamswithpracticalguiticeonkeypetiorrnanceindicators(IUJI).ItexplainswhatWI’sare,howtheyareapplied,andprovidessomedetailedthoughtsontheprocessofhelpingciientstodevelopaWIsystemtoimprovethewaytheymanagethemselves,Copyright1992McKinsey&Company,Inc.PDNetisaProprietaryDatabaseThisdocumentisforusebyMcKinseystaffonlyandmaynotbedistributedoutsidetheFirmKEYPERFORMANCElNDlcAT~.,August1992TheobjectiveofthisdocumentistoprovideteamswithpracticalguidanceonKeyPerformanceIndicators(KPIs).ItexplainswhatKPIsare,howtheyareapplied,andprovidessomedetailedthoughtsontheprocessofhelpingclientstodevelopaKPIsystem.TheinsightspresentedhereweregainedduringanextensiveKPIstudyforamajorU.K.basedinternationalinsurancegroup.Thelessonslearnedare,though,applicabletoallindustriesandthisdocumenthasbeendesignedasagenericguidewhichmaybeofinteresttoanyteamthinkingaboutKPIs.CommentsspecifictotheexperienceintheinsuranceindustryhavebeenbroughttogetherintheAppendix.ForfurtherinformationpleasecontachPaulCoombesUK/LNRobetiGoodmanSCICPStefanLinnUKILNJulianSeawardUKILNStephenBarringtonUK/LN.,,KEYPERFORMANCEINDICATORSAWorkingGuide1.Description.2.Application.3.Developmentprocess.Appendix:KPlsininsurance.LDESCRIPTIONKeyPerformanceIndicators(KPIs)areavehicleforchangingtheprocessbywhichabusinessismanaged.KPIsaremeasureswhichreflectchangesinthekeyunderlyingperformancedriversandhelpdiagnoseareasforaction.Theyareintendedtobethemostimpotiantinformationrequiredtomanageabusinessandtheyhelpovercometheproblemof‘notbeingabletoseethewoodforthetrees’or‘analysisparalysis’.nnnnKPIsarebasedonathoroughunderstandingofthebusinessandtheleversthatmanagerscanpulltorunit(Exhibit1).KPIscanbecharacterizedasinsightfulmeasureswhicharedistinctfromcustomarydetailedmanagementinformationreportsbecauseoftheirselectivityoffocus.(Exhibit2.)Onceupandrunning,KPIsaretypicallydeliveredintheformofaregularmanagementdatapack-i.e.,acomprehensiveorexceptionbasedpaperreport-orelectronically(Exhibit3)..,Mostimportantly,however,KPIsfacilitatestrongermanagementprocesseswhichencourageimproveddecisionmakingandaction.TheycanthereforebeusedasachangemanagementvehicleandcanberegardedaspartoftheFirm’schangemanagementtoolkit.(Exhibits4&5).Exh[b!1KPIsshouldbebasedonagoodunderstandingofthebusinessandtheyshouldanswerthekeyquestionsaboutthebusiness’speflorrnancedriversUNDERSTANRINGTHEBUSINESSDRIVERS1...STRUCTUREINTOAREASOFLEVERAGE...lC)EN~WUNDERLYINGDRIVERS...r.invest-mentEXAMPLES...PricingDistributionProductioncostAssetutilizationStaffskills...ANDiMPORTANTOVER-VIEWINDICATORS...EXAMPLE..-Salesandprofittrends...DEFINEKPIsTranslateintomeasuresthat‘answerthequestions’youshouldasktounderstandwhatiscausingchangesinfinancialandoperatingperformanceExh@”I2KPfsgiveinsightsthataremorefomsedthantypicalmanagementinformationCHARACTERISTICSOFKPIsCOMPLEMENTUSUALACCOUNTINGDATAFINANCIALANDNONFINANCIALINCLUDEEXTERNALMEASURESEASILYUNDERSTAND-ABLEAtIJDMEANINGFULNOTNECESSARILYCOMPREHENSIVEFULLYSOMETIMESTEMPORARYManyKPISwillbedrawnfromthemuchmoredetaileddataavailableinthebusiness'sfinancialand...
