KPI execution. System of key performance indicators. KPIs in trade

In this article you will learn

• What is KPI and what types of key performance indicators are there?
• Why KPI systems often don't work
• How much does it cost to implement a KPI system in a company?

This article is about developing KPI in organizing and understanding the necessary criteria that need to be taken into account to increase the effectiveness of the implementation of the new system.

Any personnel motivation system should be aimed at finding connections between the goals of the enterprise and the employees themselves. The effectiveness of such a link between personal and corporate goals is possible in a situation where employees clearly understand the goals of the enterprise and understand the opportunity to influence their income (and not just receive a standard salary that does not depend on the employee’s performance). Therefore, the remuneration of employees at the level of department heads should include a variable part - approximately 25% of total income.

What is KPI?

The KPI system itself cannot be considered a personnel motivation system. It is simply a tool for the control system. Today, almost any indicator is usually called KPI. I can’t understand why many enterprises name the payment of percentages on sales to managers as a KPI. Or why KPI is usually called the coefficient of labor participation - probably just some fashion trends that are not entirely correct.

KPI – key performance indicators (performance indicators). Setting up a management system for KPIs is based on the ability to achieve the main goal of the enterprise by meeting the performance indicators of employees from various departments.

Types of KPIs

1. Target indicators. These indicators reflect the degree of proximity to the goal. We will pay special attention to these target indicators in the article.
2. Process indicators. Evidence of the effectiveness of the process. They allow you to evaluate whether a certain process can be completed faster or costs can be reduced without affecting quality.
3. Design indicators. These indicators are related to specific project goals - they indicate the effectiveness of the entire project and its individual parts.
4. Indicators of the external environment. These indicators cannot be directly influenced. However, they must be taken into account, for example, when developing targets. External KPIs include price fluctuations and the current price level on the market.

Is the KPI system effective in small businesses?

It makes no sense to introduce KPIs if the enterprise does not have a management system in place - when success depends solely on the efforts of the owner, who combines the functions of the chief financier, general director, and chief personnel officer (mostly these are enterprises in the 1st phase of development).

The success of KPI integration is not affected by the number of employees. Another condition must be met - appropriate business maturity and an adequate accounting system. One of the classics of management emphasized that it is impossible to manage what cannot be counted. KPI – countable key indicators. They can be qualitative (in the form of ratings, points, etc.) or quantitative (time, money, volume of goods, people, etc.). However, in any case, key performance indicators must be countable for objectivity and comparison of data.

A mature accounting system does not necessarily include, for example, a fancy CRM module or other popular applications. It is possible to fix and process the corresponding parameters in Excel. The main condition is maintaining not just formal accounting records in the company, but also management ones. Consequently, there will be a clear understanding of the trajectory of your money, the budget of income and expenses, there will always be an understanding of business trends, with the ability to calculate the balance.

When deciding on the relevance of KPIs in your company, you need to take into account that implementing the system will require expenses of at least a million rubles. Therefore, when investing in such a project, it is necessary to understand the expected return and the period of its receipt. If your system is operating normally, with the achievement of your goals and business development, but at the same time you are using long-standing, proven management tools, you need to switch to settings for KPIs only for a certain expressed reason, and not just to follow fashion trends. The KPI system will ensure the effectiveness of the result within the framework of projects of product diversification, significant scaling of your business, increasing market share by an order of magnitude, entering the regions, etc.

KPI development: how to implement key performance indicators

It is recommended to develop KPIs in a top-down hierarchy - from the main goal of the enterprise to the goals of departments and functionalities. Sometimes formation begins from the bottom - from the indicators and goals of a certain performer (usually from a top manager to a middle manager), then the path begins upward to the formation of a common goal. Indeed, at the level of everyday consciousness, one gets the impression that it is much easier to set a goal for an employee than to achieve an understanding of the overall goal of the organization. But under this condition, there can be no guarantee of achieving the desired results on the scale of the entire enterprise if the focus is on individual employees. Consequently, it will be necessary to verify the compliance of individual goals with the overall goal of the enterprise. In fact, you will need to do the same work twice.

Determining the overall goals of the enterprise when implementing KPIs

First of all, when planning to create KPIs, a company needs to answer the question “why?” Why does the company operate, for what purposes did it come to the market, why do consumers need it?

The answer to this question will determine the chosen direction of activity in the market - from its current position to the chosen final goal.

You need to determine your goal, which is set for the long term - for example, after 3 years. When formulating an answer, it is not recommended to focus your attention on financial aspects. After all, finance is a fairly relative component, as confirmed by the recent crisis.

It is better to formulate the goal in such a way that the financial desire follows from it, but is not clearly stated. Thanks to this, the stability of the system increases, despite changes in market parameters. The goal should not be related to a specific unit, but to the market - therefore, actions will be initially tuned to market changes.

You can formulate your goals as follows: to be among the top three leaders in the Russian yoghurt market, to break into the TOP 10 companies in the furniture market, to enter the market of terminal communications in Moscow and St. Petersburg, and to become a leader in certain regions.

From the formulation of goals in the form of a desire to achieve high or leading positions in a particular market, all financial aspects will follow. The goals for profit, turnover, cost share and growth dynamics of the enterprise will become clear.

After determining the overall goal of the company, it will need to be divided into subgoals by asking the question “What needs to be done to achieve the main goal?” What you should immediately pay attention to is not what needs to be done, but what “to do.” In the context of this formulation, “doing” means moving in a certain direction. And “to do” presupposes the implementation of a specific event. If the main goal of the organization is presented as a specific action plan, then there is a risk of not achieving it if one of the planned events turns out to be impossible. If the direction of your movement towards the goal is correctly set, there will be the possibility of maneuver - therefore, it is possible to choose plan A, plan B, etc.

KPI selection

In most cases, there are no problems when compiling a list of possible KPIs. Because managers are well aware of the parameters by which the performance of departments can be assessed. However, problems accompany the selection of key, most significant KPIs.

The presence of multiple key performance indicators, similar to the selection of only one indicator, leads to a deterioration in management capabilities. Because too many indicators complicate the calculation procedure. When choosing only one key performance indicator (KPI), two options arise - to confirm its achievement or non-achievement. But there is no room for maneuver by making changes to the work process in situations where the results do not meet expectations.

Consequently, only a set of several top-level KPIs – preferably two or three – allows for flexibility. They can be selected based on assessing the significance of each KPI by analyzing their weight.

For each indicator, an expert weight is assigned so that the combined sum of the weights of all KPIs is unity. You don’t have to limit yourself to the number of KPIs. Weight must be determined taking into account the principle of necessity - what indicators need to be met to achieve the goal (which ones are not just desirable, but necessary, without which it is simply impossible to achieve the goal). These indicators are characterized by the greatest weight. Then we remove indicators with a weight below 0.1, and again distribute the weights between those KPIs that remain. The output will be no more than 3-5 indicators. Indicators with very small weights can then be taken into account for the motivation scheme as conditions for reducing or increasing the size of the bonus.

The placement of scales is usually done by the CEO and a team of top managers, taking into account the priority of the company’s tasks. Based on the weight of the indicator, you can understand what actions the company should place its main emphasis on in the foreseeable future (see. table 4).

Selection of “leading” and “lagging” KPIs

Leading indicators – allowing, in case of noticed deviations from the path to the goal, to intervene in a timely manner and make the necessary corrections to the situation. They support the management of movement towards the goal. An example of such an indicator is the level of inventory in a warehouse. This parameter can be controlled in the low or high season by making sure that there is a sufficient amount of raw materials in the warehouse to produce a certain amount of products, or you will need to purchase it additionally. Or there may be an excess of raw materials in the warehouse; they are old and must be sold to free up space for new ones. By taking into account the “raw material stock level” indicator, it is possible to make management decisions aimed at improving production efficiency.

There are not only leading, but also lagging KPIs. According to these indicators, achievement or non-achievement of one’s goal can be stated, but without the possibility of making adjustments while moving towards one’s goal. Therefore, if the goal is not achieved, lagging indicators simply indicate damage to the enterprise. Consequently, lagging indicators play the role of stop factors within bonus schemes. In fact, if this indicator is not achieved, the bonus will not be paid in full or it will be significantly reduced. An example of such an indicator is staff turnover. After all, this indicator can be stated only based on the fact - how many employees the company lost over a certain period. The adoption of management actions can only apply to the next period. But it will not be possible to influence current losses - they can only be recorded for the future.

Therefore, when calculating the bonus scheme, the formula includes in the formula not only the weight and percentage of completion of a certain KPI, but also the number of leading and lagging indicators.

In addition to calculations, it should be recalled that the seller’s remuneration should not be tied solely to one indicator (for example, revenue or turnover), without taking into account market characteristics and seasonality. Because otherwise, a business may face the trap of satiety - material factors lose their motivating power. Consequently, the return for every ruble invested in employees brings gradually less and less return. And over time, the amount of investment in employees begins to exceed the return. A similar danger arises when providing an employee with an income that exceeds the level he needs for his usual lifestyle (as a rule, it is achieved with 2 incomes of a specialist in his region in a given specialty). The only way to cure the “satiation trap” is to fire an employee who has ceased to produce results - it will no longer be possible to achieve the desired effect by changing the payment scheme.

Formula for calculating a bonus based on KPI for the head of the commercial department

Bonus = (BF KPI 1 × A + BF KPI 2 × B + BF KPI 3 × C) × D, Where:

BF KPI 1, 2, 3– max bonus fund, which is multiplied by the weight of KPI 1, 2, 3.

A– an adjustment factor to KPI 1 with a threshold value of 70% (if the plan is achieved less than 70%, no bonus will be accrued for this indicator (A = 0); if the sales plan is fulfilled by more than 70%, the corresponding bonus will be accrued in proportion to the implementation).

B– correction factor to KPI 2, the threshold value of which is 85%. When this indicator is fulfilled less than 85%, it is B = 0. When the 85% level is reached or exceeded, the bonus will be accrued in proportion to the fulfillment. The coefficient is blocking - if the threshold value of KPI 2 is not met, the bonus will not be paid, regardless of the results for KPI 1 and KPI 3.

C– correction factor to KPI 3 (threshold value 60%). If the indicator is fulfilled by less than 60%, then C will be equal to 0; if the indicator is fulfilled by 61-100%, the accrual is proportional to the fulfillment.

D– a stop factor, which is a general blocking correction factor, with the bonus payment being reset to zero if the minimum threshold values ​​for any KPI have not been achieved.

According to the proposed scheme, the seller's attention falls on the size of receivables along with the cost of the sales process and the level of sales, and is not limited to only achieving growth in turnover at any cost. Thanks to this, the company is able to achieve timely receipt of money by refusing interest-free lending to staff or clients.

When will a KPI work and when will it not?

The KPI system will be effective under the following conditions:

• with proper weighing and placement of all KPI indicators;
• correct creation of a tree of company goals;
• The accounting system will allow you to calculate all KPI calculation formulas;
• correct distribution of responsibility for goals (and processes) between performers;
• entering data into the accounting system by trained, uninterested people - not those who carried out the KPI data. In this case, it is necessary to enter reliable information;
• linking KPIs to the staff motivation system. The motivation system should be built with the priority of the enterprise's goals over the goals of employees, but with their mandatory consideration.

When the KPI system doesn't work:

• The company's management did not participate in the creation of the goal tree.
• It is impossible to calculate KPIs due to the lack of data in the accounting system, subjectivity or unreliability of their assessment.
• Incorrect development of KPIs - without taking into account relevant indicators of achieving the set goals.
• There is no link between KPIs and the motivation system.
• The implementation of KPIs is not for all departments. In this case, the control system will be skewed.
• KPIs are tied to the current motivation system, but without taking into account the personal motivation of employees for whom KPIs are introduced.
• The achievement of KPIs and the payment of a bonus for them are divided for a period of more than 3 months. In this case, employees simply get tired of waiting, ceasing to connect the correctness of actions and reward. For long-term projects in a company, you need to tie KPIs and a bonus for achieving goals not only to the final results of the project, but also to intermediate stages.

How to overcome staff resistance when implementing a KPI system

1. Employees need to be explained that what is being implemented is related to what they already did the day before. Thanks to this, there will be no expectation and fear of dramatic changes every Monday with the cancellation of past results.

2. KPI is a rather complex tool. Therefore, it is necessary to explain this methodology to all users in advance - to receive feedback in test mode, debate, discuss issues that have arisen, etc.

3. A critical success factor is participation in the project of setting up KPI motivation for the General Director and the top management team. If management has doubts about the overall success of this project, such undertakings do not make much sense at all.

4. Top managers should also involve middle managers in the KPI development work process - that is, employees who will be forced to evaluate and plan their own actions according to the new approved system. They must jointly create a step-by-step plan for implementing a new project - usually the commercial departments are the first to test the system, and at the very end - the back office.

5. It is necessary to encourage the activity of employees when implementing changes - you need to celebrate any, even the smallest victories.

6. Ensure your workflow is compliant with changes. Therefore, it is necessary to separately plan the transition from the current system of regulations to the new one - this will not happen instantly, so it is necessary to separately take into account and control the time of this transition.

7. It is necessary to adhere to continuous changes in the company. However, in order to ensure continuity and consistency, the optimal situation is when all changes flow from the main goal of the organization.

• Motivation, Incentives and Remuneration

Keywords:

1 -1

What is the KPI matrix

To evaluate employees based on KPIs, create an agreement on goals or the so-called “KPI matrix” for each employee. Include in this matrix the four or five most important performance indicators for ordinary employees and six or seven for middle and senior managers.

These indicators must be selected while maintaining the golden mean between the interests of the employer and employees. To do this, include in the matrix for each employee all the main indicators, the implementation of which will lead to the expected business result, while their description and meaning should be clear to employees.

It is also necessary to comply with all criteria for quality KPIs, for more details see the KPI System.

What is the algorithm for developing a KPI matrix

To develop a matrix, you need:

• select KPI indicators for a specific position from the library;
• determine the weight of each indicator;
• determine acceptable values ​​of the indicator;
• calculate the KPI index;
• digitize quality KPIs;
• evaluate employee performance.

How to choose KPI options

Select key performance indicators from the library of KPI positions that will help you fully assess the employee’s contribution in the coming month (quarter) to the implementation of business goals. Determine the composition of these indicators, taking into account the specifics of the current situation in the organization and division, as well as the characteristics of the tasks that employees will have to solve during the reporting period.

At the same time, some of the indicators for a specific position may be constant, and some may be updated periodically. This is due to the fact that the tasks of the organization, department and position change periodically and this must be taken into account in the criteria for evaluating work.

In any case, the composition of indicators should be balanced and include both quantitative and qualitative indicators that allow for an in-depth analysis of the work result, and indicators that will take into account team and individual contributions to the overall performance result.

At the same time, there are positions for which it is difficult to select quantitative indicators. In these cases, evaluate work results exclusively using qualitative KPIs.

For a description of types and examples of KPIs, see the table.

How to determine KPI weight

Once the indicators have been selected, determine the weight of each. Weight is understood as a coefficient of the relative importance of an indicator, which allows one to take into account the priorities in an employee’s work based on the current priorities of the department and the organization as a whole. The weight can be estimated as a percentage, but it is more convenient to immediately convert the values ​​into a number from zero to one, this will simplify future calculations. It is recommended to set the weight value no higher than 0.5 and no lower than 0.1.

The sum of the weights of all indicators must be equal to one, that is, if four indicators are selected for a position, the sum of these four weights is equal to one

How to normalize KPIs

When you have determined the weight of the indicators, perform their normalization. To do this, determine the basic, normative and target levels of each indicator. Where:

• base level – the worst acceptable value of the indicator. If the value of the indicator is worse than the base, then this creates a threat to the activities of the organization or division and is completely unacceptable. This indicator is the “zero” point, from which the result of the work is calculated. An indicator below the basic level indicates a complete lack of results. For example, a sales manager may have a minimum sales volume. Anything less is a zero result;
• normative or planned level - something that an employee must fulfill in order for the organization to work normally and achieve its goals. If the indicator values ​​are worse than the norm, this means that the employee is not fulfilling his function. At the same time, the normative meaning of quality results must be clearly used so that employees understand what kind of results their internal clients expect from them: the manager, colleagues from related departments and others;
• target level is an excess value to which it is desirable to strive. In some cases, the goal may coincide with the norm. But if it is possible to set a target level that is better than the standard, then do it. In this case, it is recommended to set goals at a level no higher than 20–25 percent of the norm, taking into account the base. If the goal is very “high” compared to the norm, this means that either the goal will be unattainable, or the standard is too low and needs to be revised.

For example, for the sales manager of the Alpha company, the manager chose “Sales volume” as one of the quantitative KPIs. This KPI was set to the following values:

• basic level – 100 thousand rubles;
• standard level – 500 thousand rubles;
• target level – 800 thousand rubles.

The results of normalization of this and other KPIs were entered into a table, which was formatted in any form.

How to evaluate quality KPIs

Quality indicators are assessed by the employee’s internal clients and, first of all, by his manager. The basis of the analysis is the quality of the employee’s work during the reporting period. For example, for the sales manager of the Alpha company, the manager set a qualitative KPI “Satisfaction of internal customers,” that is, the satisfaction of employees of related departments, whose work depends on the quality of interaction with the person being assessed. The value of this KPI was taken from the survey result.

To calculate the overall result of an employee’s assessment, the value of any qualitative indicators must be converted into points. To do this, use a 100-point scale. Distribution of points in this scale by level depending on the indicator, approach to assessment and management requirements. For example, the scale might look like:

• unacceptable result – from 0 to 20 points;
• weak – from 21 to 40 points;
• mediocre – from 41 to 60 points;
• good – from 61 to 80 points;
• excellent – ​​from 81 to 100 points.

And in order to normalize qualitative indicators by analogy with quantitative ones, set “reference points”. For example, a base was set for a sales manager - from 0 to 20, a norm - from 40 to 60, a goal - from 80 to 100 points. These indicators were entered into the table with the KPI matrix.

How to determine the KPI index

The next stage of developing a KPI matrix is ​​calculating the KPI index. The index shows, as a percentage, the degree of fulfillment or exceeding of the norm and is calculated using the formula:

KPI index

= (

(Fact - Base)

:

(Norma – Base)

) ×

100%

The purpose of the indices is to convert KPI values, which are measured in different scales and units, into a single metric scale (in percentages). This approach allows you to compare work results using different indicators and calculate the overall employee performance ratio.

For example, for a sales manager, taking into account actual sales - 600 thousand rubles, base - 100 thousand rubles. and norms - 500 thousand rubles. the index for the KPI “Sales Volume” is equal to:

Index “Sales Volume” = (600 – 100): (500 – 100) × 100% = 125%.

If the KPI index is above 100 percent, the norm (plan) for this indicator has been exceeded. In this case, the KPI falls into the “green” (allowed) zone. If the KPI index is below 100 percent, the norm is not met. In this case, the indicator falls into the “yellow” zone if the KPI index exceeds 80 percent. Otherwise, this indicator falls into the “red” (prohibited) zone.

How to make an overall performance assessment

When the numerical values ​​of all KPIs have been determined, find the weighted average result of the employee’s work over the past period, taking into account all KPIs and their weights. To do this, calculate the success rate as a percentage.

To this end, multiply the values ​​of all KPI indexes by the weights of the corresponding indicators and find the total amount.

If the coefficient is more than 100% (norm), this is an indicator of the employee’s high performance. If it is less, then the employee works worse than management requires of him. How much worse - find out by comparing the value of the performance coefficient with the established acceptable values. In this case, the permissible value is established by the immediate manager of the unit being assessed on the basis of the work plan, development strategy, in agreement with senior management

How to familiarize an employee with the matrix

After all stages of matrix development have been completed and the table has been prepared, present this information to the employee. Discuss with him the meaning of all indicators. This must be done at the beginning of the reporting period, during which this method of labor assessment will be used. Thus, the employee will learn the tasks for the upcoming period, the criteria for assessing his results, and will be able to build the most effective work system.

How to establish KPI matrices for each position in the organization’s regulatory documents, see KPI System.

Example of a KPI matrix for a commercial department specialist

At Alpha, sales specialists are assessed based on five individual indicators. Of these, three indicators are quantitative (sales volume, cash flow, overdue accounts receivable) and two are qualitative (satisfaction of internal customers, team work). Moreover, one of these indicators – “Overdue accounts receivable” – is negative, and the rest are positive.

After assessing the weights of the indicators, baseline, normative and target values ​​were established. At the end of the month, the actual results were assessed, KPI indices and the employee’s performance coefficient were calculated:

Sales volume = (600 – 100) : (500 – 100) × 100% = 125%.

Cash receipts = (370 – 150) : (400 – 150) × 100% = 88%.

Overdue payout = (250 – 800) : (300 – 800) × 100% = 110%.

Internal customer satisfaction = (70 – 0) : (80 – 0) × 100% = 87.5%.

Teamwork at work = (60 – 0) : (80 – 0) × 100% = 75%.

Success rate = 125 × 0.3 + 88 × 0.25 + 110 × 0.2 + 87.5 × 0.15 + 75 × 0.10 = 102.13%.

The data was compiled into a KPI matrix, formatted in tabular form in free form.

As a result, according to two indicators: sales volume and overdue receivables, the standard was exceeded. As a result, these KPIs have indices above 100 percent (“green zone”). The allowed (acceptable) values ​​of indicators fall into this zone.

For the other three KPIs: cash flow, internal customer satisfaction and teamwork - the norm was not met. There are two options for these indicators:

• if the index is in the range from 80 to 100 percent, then the indicator is in the “yellow zone”. These are unresolved but warning indicator values;
• if the KPI index is less than 80 percent, then the indicator falls into the “red zone”. This color corresponds to prohibited indicator values. In general, the boundary between the “red” and “yellow” zones can be set independently for each KPI.

Thus, the indicators “Cash receipt” (88%) and “Internal customer satisfaction” (87.5%) were in the “yellow zone”, and the indicator “Teamwork at work” was in the “red zone” (KPI index = 75 %).

Accordingly, this employee, in the opinion of his manager, paid too much attention to personal results and did not interact productively enough with colleagues in his department. This fact, as well as the positive results of the work, were discussed with the employee in a meeting for monthly feedback.

Calculating the degree of KPI fulfillment is the heart of the payment system. The mechanism for calculating and calculating bonuses, and, therefore, the effect of the entire motivation system depends on it. However, from what I see in most organizations, modern managers still have no idea how to do this simply and effectively. As a result, cumbersome, complex and mostly unworkable schemes are invented to pay staff. Or even worse, they create a commission scheme for salespeople, and for everyone else “based on the results of the company’s work.” We will talk about the dangers of these approaches separately.

In fact, the secret to calculating KPI is quite simple and consists of one single and rather trivial formula. But instead, in practice, for some reason, several extremely ineffective schemes have become widespread, which usually greatly hinder the implementation of KPIs in organizations. And the worst thing is that even in the specialized literature nothing sensible has been written about this.

So, let's try to figure out how the degree of KPI fulfillment is usually calculated, why this should not be done, and how it should be done in order to get the result you need.

1. Plan-fact

This is the simplest and most obvious way, because... any key performance indicator (KPI, KPI) reflects a goal, and the goal must have a measurable expression - a plan. Without a plan, KPIs cannot exist. Accordingly, the first thing that comes to mind is to divide the fact into a plan. For example, the sales plan is 1.5 million rubles, and the actual amount is 1.35 million. Accordingly, the degree of implementation will be 1.35/1.5 = 90%. For plan-fact analysis, such a formula is absolutely justified, however, we are talking about calculating the fulfillment of KPIs for further calculation of bonuses. In this case, we do not take the commission scheme into account.

So what to do in the example given? Pay an employee 90% of the planned bonus amount? It seems logical if the plan is 90% completed. What to do if the plan is 50% fulfilled - pay half the premium? But if the sales plan is only half fulfilled, then the company is most likely already in a very difficult situation. The product has a cost price, the organization has indirect costs that must be covered from the markup. Today is no longer the 90s, and if the sales plan is half fulfilled, then the organization will most likely incur losses, which means it will have to optimize costs, reduce personnel, or even worse. Paying a premium (even half) in such a situation is tantamount to suicide.

One organization introduced a special condition for this case: if the degree of KPI fulfillment (calculated using the fact/plan formula) is less than 50%, no bonus is awarded. Well done, we have insured ourselves against paying bonuses in the event of bankruptcy, but in such a situation half of the bonus fund is not used for the intended purpose. In fact, in that organization all plans were guaranteed to be fulfilled by 70-80% - the business has a certain inertia. The struggle was just for the last 20-30%. To obtain them, you really had to make some effort. But with the actual/plan execution formula, the target use of the bonus fund is only 20-30%; the remaining payments are guaranteed to all employees. Why bother for a 20% bonus, which is about 30% of the total salary, because it is only about 6% of the total earnings (0.2 x 0.3 = 0.06). This type of bonus system simply doesn't work.

This leads to the first most important rule:

Every KPI other than the plan must be critical

This truth has long been obvious in Western companies, which over the past decades have been imbued with quality management systems, performance management technologies, etc.

Critical value for simple direct indicators (the more, the better) - this is the minimum below which the KPI fact should in no case fall. For example, the plan is to process 97% of customer applications within the scheduled time frame, the critical value is 92% of applications. Below this threshold, contract penalties begin and clients change service providers. For inverse indicators, the critical value is the permissible maximum. For example, the plan for the level of defects is no more than 1.5% of production volumes, the critical value is 5% (in this case we stop the line).

Tolerance is the difference between the planned and critical value. In the first example it is 5% (97-92), in the second – -3.5% (1.5-5). In real life, the struggle for actual KPI values ​​is waged precisely within the limits of acceptable deviations. And it is within this framework that the degree of fulfillment should be considered and the bonus calculated. But the simplest fact/plan formula does not take this into account.

2. Tables of values

Many managers intuitively understand this problem, but, not knowing professional means of solving it, they do what they saw somewhere. Thus, in practice, substitution tables have become widespread, in which certain intervals of indicator values ​​and an index of the degree of implementation corresponding to each of the intervals are indicated. Surely each of you has encountered similar things at least once in your life:

No.	Intervals of deviations of KPI implementation from planned values	Percentages for adjusting the planned amount of remuneration
1	from 97% and above	100%
2	from 90% to 96.9%	75%
3	from 85% to 89.9%	50%
4	from 80% to 84.9%	25%
5	below 80%	0%

At first glance, it seems that the problem has been solved: the degree of completion now takes into account the critical value for the indicator, the degree of completion is more sensitive to changes in the indicator, which is what we wanted to achieve. Apparently, because of the apparent simplicity of the solution, value tables have become so widespread. In practice, they have a number of very significant disadvantages:

1. When using this kind of tables the premium becomes discrete, insensitive to small changes in the indicator. For example, in the example above, the premium will be the same for 91 and 96% of the indicator. And for a company, such fluctuations can cost half or a quarter of profits. But the difference between 89.9% and 90% is a quarter of the premium, and the company may not notice such a fluctuation or it may be caused by measurement error. This is not fair and makes the bonus calculation random.
2. This kind of table is relatively convenient to use when all indicators in the company are direct (the more, the better) and have the same permissible deviation. For example, 20% of the plan, as in our example. What if some of the indicators are inverse (budget savings, reduction in defects), and the permissible deviations for them differ? For example, the permissible deviation for the level of defects is 5%, for revenue - 20%, and for overdue receivables - 50% of the plan. In this case, it is necessary to develop a separate table for each indicator. What if the permissible deviations vary depending on the season? For example, in our peak season the permissible deviation in revenue is 25%, and in the low season – 50%. As a result, a separate substitution table will have to be compiled for each indicator for each calendar period, which greatly complicates the calculation of premiums. Or you need to remove from the list of KPIs everything that does not fit into the “simple direct indicator with a permissible deviation of 20%” scheme. But then the payment system will again become flat and will not reflect the real results of the employee’s work.
3. An additional calculation step is added, which also complicates the procedure for calculating the premium. After all, you first need to calculate your indicator in its physical terms (in rubles, pieces, tons, hours or even in %), then calculate the degree of its implementation by dividing the fact into the plan, and only then get the adjusted degree of implementation by substituting the resulting plan-fact to the table of values. There are situations where tables of values ​​are used immediately in physical terms. For example, 2 violations of the regulations - 0% premium, one violation - 50%, zero - 100%. But for indicators with changing plans and acceptable deviations, this scheme is not suitable.

In general, you cannot create an effective bonus system using such an engine.

3. Formula with standard

In fact, the solution is quite simple and has long been known. To calculate the degree of fulfillment of an indicator, you can and should use a formula that correlates the fact not only with the plan, but also with the critical value of the indicator. It looks like this:
The meaning of the formula is that the numerator is the difference between the fact and the critical value, because You only have to pay for exceeding it. This difference is then correlated with the permissible deviation. That is, a fact equal to the plan is taken as 100%. It `s naturally. If the fact is compared with the critical value, the degree of completion will be 0% - there is no need to pay a premium for such a result. Intermediate values ​​are calculated linearly and continuously. The calculation logic is shown schematically in the picture:

A comparison of the formula with the standard and the classical methods of calculating KPI described above is shown in the following picture:

As a result of using the formula with the standard, all the main problems are solved:

1. You do not pay for actual KPI values ​​above/below tolerances.
2. The premium becomes maximally sensitive to any changes in the KPI fact within the permissible deviation.
3. The formula is absolutely universal and is suitable for any type of indicators - direct, inverse and even corridor, for each KPI for each period you can set the required permissible deviation, the formula does not care.

Simple, convenient, versatile and effective. One difficulty remains - for each indicator, in addition to the plan, it is now necessary to develop a permissible deviation. But this is already inevitable if you want to create a working KPI system in your company. We will discuss separately how to correctly determine this permissible deviation.

It is noteworthy that most automation tools for KPI calculations are not familiar with this formula (and automation for KPI management is useful, we wrote about this earlier). Of course, this formula is “hardwired” into HighPer, because we developed it with the understanding that it is impossible without it. KPI-Drive from A. Lityagin has

a universal mechanism for setting the degree of performance of an indicator, where you can set up a formula with a standard, but only if the KPI standard does not change from month to month as a percentage of the plan. If the permissible deviation “jumps”, the desired adjustment can no longer be made. The rest simply stupidly divide the fact into a plan or offer tables of values. Imagine, you buy a program that should make your life easier for several hundred or even millions of rubles, but it doesn’t even allow you to enter a permissible deviation for an indicator - the corresponding field is not provided in the program. This clearly shows the degree of understanding of the KPI methodology by the developers of the relevant software products.

To be fair, we can add that in theory there are also other ways to calculate the degree of KPI fulfillment:

• Nonlinear (parabolic), when the degree of execution function is given by a power equation.
• Progressive / regressive, when the degree of completion function changes its slope depending on the interval in which the actual value falls.
• Competitive, when the best/worst employees receive/do not receive a bonus.

[Povarich B.G. Work motivation: managerial aspect. Novosibirsk, 2008, pp. 90-92].

However, in practice we have not encountered such remuneration schemes - they are too complex.

Good luck with motivating your employees!

Today, there are practically no company executives who have never used KPI performance indicators. The abbreviation that everyone knows stands for “Key Performance Indicators”, which means “key performance indicators”. In the Russian environment, KPIs are interpreted a little differently, measuring the efficiency of an enterprise, which is essentially no different from the original interpretation.

Main questions of the article:

• What is KPI indicator?
• Main KPI indicators
• Application of KPIs in practice
• Examples of KPI indicators

What is KPI?

KPI is a set of indicators by which the performance of a company, department or individual is assessed. Such indicators, comparing the assigned tasks with the results obtained, assess how far certain goals have been achieved.

Main characteristics assessed by KPI indicators:

• productive result is what the enterprise’s activities are aimed at, i.e. net profit received, volumes of products sold, sales revenue, volumes of products produced, market share occupied by the enterprise, number of clients acquired, their positive reviews, image, etc.;
• indirect effect - results that are unfavorable for the company: debts, excessive staff turnover, etc.;
• resource costs – all costs incurred by production;
• time costs – the amount of time spent on tasks;
• an objective assessment of the productive effect (useful) is the main KPI indicator characterizing efficiency; all other indicators evaluate effectiveness. This indicator is calculated by relating the productive result (beneficial effect) to the sum of all costs (resource and time).

Video on the topic: how to correctly determine KPI

Main KPI indicators

Most often, KPI indicators are used by large retail chains that own a huge number of branches. It is easier for the head office management team to evaluate the company’s performance in one plane, using a set of specific indicators. On the basis of which it is easy to track this or that trend. In medium and small businesses, the use of the KPI indicator system is more complex in terms of assessment, but is nevertheless quite often used.

Each manager has the right to choose the required number of KPI indicators independently. The main criterion in choosing is the ease of calculating values. It is also important to remember that the selected indicator must fully analyze the outcome of the activity.

Among the indicators used to analyze performance, the most commonly used are:

• sales volume indicator - cash receipts from goods sold are analyzed;
• staff turnover rate is the % ratio of the number of hired and dismissed employees for a certain period;
• indicator of service standards - % expression of secret assessment of service quality.

Depending on the goals of the analysis, the scope of activity, and the specifics of the company’s work, the indicators may be different.

Application of KPIs in practice

There are several basic methods for using the most optimal list of KPI indicators. However, many years of practice have brought out the main rule “10/80/10”, where:

• 10 is the number of key indicators for assessing the result obtained;
• 80 is the number of indicators that evaluate production activities (operational);
• 10 is the number of indicators by which performance is assessed.

It is worth understanding that the main principle of using a KPI system is the ability to manage and control the receipt of the necessary results, i.e. the company, department or individual employee entrusted with the implementation of KPI analysis must have all the authority to influence the progress of obtaining the indicators necessary for further KPI analysis.

There are also several other principles that greatly facilitate the KPI analysis process:

• the principle of partnership - you need to understand that in order to obtain the most positive result of any activity, the cohesive work of the entire company is necessary, from management to service personnel;
• improvement principle – the essence of this principle is that the company’s management needs to be ready to train the team, conduct a program to improve the skills of some employees, etc. to achieve the desired result;
• the principle of increasing responsibility - this principle implies that by introducing KPI analysis it is possible to increase the independence of employees with regard to making management decisions;
• the principle of compliance with the analysis strategy and the obtained indicators - the goal of the principle is to obtain optimal results of KPI analysis that meet the basic requirements of the strategy for analyzing performance indicators.

Examples of KPI indicators

When implementing a system for analyzing KPI performance indicators, management often wonders how exactly KPI is calculated. You can come up with a whole list of indicators, but you need to remember that each indicator must identify a specific goal of the analysis. To develop an effective KPI analysis system for employees, it is necessary first of all to start from the tasks and functions that are their job responsibilities. For example, the effectiveness of a Sales Manager can be assessed by the number of closed transactions, customer reviews of the manager’s work, etc.

There are several conditions for conducting KPI analysis (applies to any business structure):

1. A certain number of criteria for assessing effectiveness (no more than 10 parameters, the most optimal is 5).
2. Logic. None of the criteria should contradict or neutralize the other.
3. Monitoring the implementation of KPI analysis tasks.

KPIs of company management and subordinates

By and large, the system of KPI indicators for management and subordinate personnel is the same. The main thing is that the selected indicators meet the following requirements:

• measurability;
• specifics;
• realism;
• consistency;
• certainty in time.

The main “pros” and “cons” of using KPI indicators in enterprise practice

Conducting an analysis of KPI performance indicators in a company has both positive and negative sides.

The advantages of KPI analysis include:

• the result of KPI implementation, as a rule, is greater motivation of employees to conscientiously perform their production tasks and functions;
• each employee of the company receives a specific list of required results;
• employees can clearly assess their contribution to achieving the company’s goals;
• management always has up-to-date information about the work of each employee, which increases quality control over the employee’s performance of official duties.

The main disadvantages include:

• sometimes it happens that the low productivity of a department leaves a negative imprint on the high productivity of a particular employee, as a result the employee may quit without receiving a proper assessment of his work;
• not all employees receive financial incentives as a result of achieving their goals. For example, administrative staff will remain out of work if the purpose of the analysis was to increase net profit, they simply will not have the opportunity to prove themselves;
• Sometimes, the result of KPI analysis is the so-called reverse motivation. Those. Instead of rewards for achieved results, employees receive nothing, while those who do not correct the task are fined or punished.

To evaluate the performance of certain categories of employees, Russian companies use a staff motivation system based on KPIs (performance indicators) developed within the organization. What these indicators are, how to calculate KPIs and what is the methodology for determining efficiency, we will explain in this article.

The essence of the phenomenon

KPIs are key performance indicators that evaluate the performance of each employee. They also help analyze the work of the entire company, achievements over a certain period and are an excellent motivator for quality work. The main thing is the correct development of a KPI system for a specific position, taking into account all the nuances of an employee’s activities in the company.

Universal performance indicators cannot be applied to all positions, because they simply cannot meet expectations. For example, it is almost impossible to create KPIs for an accountant. Developing a KPI-based motivation system is an analytical work that includes compiling KPIs and analyzing the results.

It is important to consider the following:

• There should be few performance indicators, otherwise the calculations will be confusing and the evaluation purpose will not be achieved.
• Each KPI indicator must correspond to the final goal.
• The established KPI indicators must be guaranteed to be achievable and clearly correspond to the sphere of influence and responsibility of the employee (position).
• It is possible and necessary to prescribe employee motivation only on the basis of key performance indicators, then the employee will understand what is expected of him and will move towards a clear goal.

What indicators are there?

Often in companies and enterprises, KPI indicators are classified as operational and those that lag behind the result.

Long-term indicators show the result after a certain time, while operational (leading) indicators allow you to evaluate the effectiveness of work very quickly.

Types of indicators in business processes:

• Result performance indicators are KPIs of profit, revenue and sales for a specific period.
• Cost KPIs help evaluate achievements taking into account financial and time costs.
• Performance indicators reflect the correctness of the employee’s activities, his work system in accordance with the regulations and algorithms of his position.
• Efficiency KPIs show the level of ratio between the result and the costs for it in different options.
• The productivity efficiency ratio gives an understanding of the result achieved in a certain ratio to the time spent.

When calculating KPIs, you should immediately formulate a goal and priorities for the chosen position. In each specific case, they are calculated separately, depending on the company’s field of activity. Assessment methods and a specific calculation formula for competent assessment of results depend on this.

We calculate KPI indicators

To understand the picture of developing KPI indicators, we will give an example that indicates an algorithm of actions.

Stages of developing KPI indicators:

1. Team formation, selection of working group members and research for each position.
2. Drawing up a methodology for action. Based on the analysis, models of a system of performance indicators for positions are created, regulations are prescribed, and indicators are developed and tested.
3. Implementation of a KPI system: established performance indicators are integrated into the software, and employees are informed about the conditions and requirements upon signature.
4. The final stage of development: monitoring the implementation of KPIs, adjusting indicators during the test period.

In practice, 2 methods of KPI development are most often used: process and functional methods.

The process approach is based on performance indicators based on the internal business processes of the enterprise.

The functional approach is based on the very structure of production or management of the organization, the functional responsibilities of the position, department, and branches.

We give in the table an example of calculation of two methods for developing performance indicators.

Process method	Functional method
Purpose of the business process (sales)
Dynamics of new clients (specific number)	Profit Profitability Increase in assets in the company
Goal of the business process (effectiveness)
Dynamics of growth in cash reserves turnover in relation to the previous period	Number of loyal customers Sales volumes for the period in monetary terms
Business process goal for customer satisfaction
Minimizing the number of product returns Reducing order completion time (placement of order and completion of purchase)	Number of new clients Reducing the time spent servicing one client
Purpose of HR business process
Quick selection of new managers	Percentage of closed and open vacancies for a specific period

For example

An example of KPI calculation for one employee is given in the table of the sales department manager, where the indicator index is present.

https://yadi.sk/i/jomsvYOq3Kyb2z

From this example and the KPI index, we can see that this sales manager exceeded the plan by 6% and, accordingly, he is entitled to a reward agreed upon in his motivation.

To calculate the KPI of a position, you can use several performance indicators and calculate motivation using the formula:

Salary + K1 + K2 + K3. Where K1, K2, K3 are KPI indicators (manager’s salary + established % of sales + % of the number of attracted clients for the period (month) + agreed bonus for quality customer service).

In this simple way, you can enter any KPI indicators into the formula, which can be calculated as a result.

Eventually

To calculate an employee's performance, it is necessary to carefully approach the assessment and objectives of the position, and this will require analyzing the level of performance and sphere of influence of the employee in a particular organization. Having determined the KPI indicators, you can prescribe a motivation system on which the employee’s salary will depend.