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The balanced scorecard, which emerged in the early 90s in the West as a dictate of the times, came into Russian management practice in the 2000s. Initially, it was generally accepted that BSC serves as a powerful motivational regulator of procedural business practices. In this article we will consider the question of what key performance indicators can be successfully applied in project activities. Such experience is gradually gaining more and more importance in modern management.

Brief overview of BSC

The Balanced Scorecard (BSC) theory became known and popular in the minds of managers thanks to the books and activities of two authors R.S. Kaplan and D.P. Norton. One of the essential components of this system are models of motivational indicators, which gradually began to be called KPI (Key Performance Indicators). Due to the difficulties of correct translation, these indicators in the Russian-speaking environment began to be called KPR (key performance indicators) or KPI (key performance indicators). For some reason, the latter has taken root better in the mentality of managers.

KPI models implemented in real business, being part of the balanced scorecard, themselves represent a system integrated into many functional control blocks. Among them, strategic management and personnel management occupy a dominant place.

In recent years, many Russian companies have learned to achieve success in developing strategy. However, the reasons for business failures still lie in the weakness of the methodical development and implementation of programs of specific actions for strategic implementation. The BSC and its key performance indicators are designed to close the gaps that remain between strategy and grassroots processes and development projects.

Company Balanced Scorecard Pyramid

The BSC system is called balanced because it represents a pyramid-hierarchy of goals that has a harmonious logic of decomposition from the vision, mission of the company, through strategy and strategic goals to goals of lower and lower levels:

• financial;
• client;
• process and design and technical;
• business system goals and personnel needs.

As you know, the traditional BSC methodology pays more attention to processes than to design tasks. This state of affairs remained unchanged for a long time. Currently, the architecture of post-industrial business itself is becoming increasingly project-oriented, therefore the need for localizing the KPI system in relation to projects is increasing. Below are two schemes for relaying the strategy down to the components of the project implementation, which do not require separate explanation.

Balanced Scorecard Project Block Model

Dividing the company's projects into two main types within the BSC

Whether we like it or not, our companies are already in the business environment of a new era. And if the path of degradation and bankruptcy is categorically unacceptable, there is no alternative to BSC. The most interesting thing is that in recent years the size of the business has not been an obstacle to the implementation of a balanced KPI system, but there are and will be implementation difficulties. Here, as always, the important thing is the movement towards a full-fledged model; it never works out perfectly the first time.

Personnel motivation in projects and KPIs

A system of performance indicators is built for management purposes by motivating personnel to solve cyclical problems (processes) and unique tasks under constraints (projects). In Russian business practice, sometimes one has to deal with a situation where a project manager is at a loss due to the unclear issues related to the motivation of not only his team members, but also himself. This is one of the significant reasons for the failure of successful endeavors.

Of course, a project-oriented system of personnel motivation needs to be carefully developed and regulated. The key role here is played by the HR director. It should be remembered that all projects are unique not only in the composition of the tasks being solved, but also in the motivational configuration. Using key performance indicators, you need to motivate not only the project team and its manager. This issue should also be addressed in relation to the project office, project management teams and, sometimes, the curator. The KPI system that motivates project participants should include the following.

1. Goals of responsible employees and teams.
2. Coverage of company employees and third party participants.
3. Validity period of motivation.
4. Evaluation criteria, its procedures and persons responsible for setting the KPI size.
5. Regulation of procedures for penalties and incentives.
6. Calendar schedule for calculating KPIs.
7. Regulations for the formation of a motivational budget.

It is very important that from the very beginning, at the level of strategy, investment and motivational policies, the company’s policy in the field of motivating personnel engaged in project activities is conceptually established. Some companies don't have this. A budget should be allocated for a fixed part of the incentives for workers involved in project activities, and funds should be raised for bonuses for their successful implementation. In my practice, I have always strived to achieve from senior management a level of bonus fund in the amount of 30-40% of the fixed part of the budget for these purposes.

Model for providing information to the procedure for calculating company KPIs

The budget management system, PMS (project management system) and the KPI system are in close interaction both from the position of the personnel motivation budget and from the position of information support for the calculation base of performance indicators. This is quite natural. Moreover, in many companies, in addition to purely financial plans and reports, the budget management complex integrates a subsystem of labor, technical and other types of regulation. In some companies, on the contrary, the normative planning system completely replaces the budgetary one and works very effectively. Whatever model of financial regulation is chosen, I am convinced that these three systems are best implemented and developed together, because they are parts of the whole.

KPIs for project-oriented business

Let us remind ourselves that project tasks in an organization are divided into two large groups: internal corporate development projects and contract-type projects inherent in the nature of a business that has a project type of production. Within the framework of this section, we are interested in the second type of organization, inherent in business in the field of construction, IT development, small-scale and piece production, and consulting activities. In this regard, examples of the development of KPI systems for company projects in these areas are of interest.

The criterion foundation for the effectiveness and efficiency of the project is formed at the stage of developing the project charter. Its components are success factors (indicators of successful implementation), which lay the foundation for the future composition of KPIs. Taking into account the main management functions, stages of project implementation, its content, limitations and risks, we focus on three subject elements of the “triangle of restrictions”:

• "money" or budgetary constraints;
• “time limits” or time limits;
• substantive limitations or “quality” of the project.

The effectiveness of projects is mainly determined by the skillful handling of these three aspects. A system of indicators should be built around them. Both according to the logic of the BSC methodology and common wisdom, budget constraints are paramount for motivating efficiency. It is more advisable to adopt the earned value method (EVM) as a basis for developing relevant KPIs. The purpose of developing indicators for this group is to determine the compliance of the actual work performed with the planned volumes within the budget.

Composition of EVM indicators that serve as the basis for project KPIs

Key performance indicators generated on the basis of the EVM methodology are well applicable in practice using the widespread MS Project. For example, the most accessible indicator - the standard value of CV - cost deviation shows whether the project manager fits into the budget allocated to him or not. We can also distinguish practiced KPIs from the category of indices, among which the CPI indicator is used for the purposes of budget restrictions. It gives a relative assessment of the efficiency of resource use.

The efficiency of project implementation in terms of time is characterized by SV and SPI indicators. Deviation from the schedule can be calculated in monetary units or time units, depending on the adopted measurement logic. This also applies to the index indicator. When considering the issue of meaningful indicators, one cannot fail to take into account the need to complete project milestones on time. So far there is no need to talk about the deployment of full-fledged BSC within the framework of individual project tasks, but element-by-element development of such systems is underway according to traditional components:

• clients;
• processes;
• systems and personnel.

Product innovation project and KPI

I will describe a real example of a project for introducing a new service “N” in a mid-level company, but with a fairly developed management. The company's personnel and motivation policies involve the allocation of motivational budgets for the implementation of development projects. The company does not have a project office, but there is a project administrator who assists several supervisors from among senior management and project managers from among functional managers and highly qualified specialists. There is no monetary motivation for curators, since they are tied to financial performance results and non-monetary KPIs from corporate strategic maps.

Within the framework of project regulations, work was carried out according to the concept and charter of the project. Criteria for assessing the success of the project have been developed and agreed upon between the curator and the PM. They include the following positions.

1. Delivery of fully developed service “N” into industrial production by deadline A within the approved budget Y.
2. Gross revenue from the provision of services “N” by term B for the period from the launch of the project is F thousand rubles.
3. Marginal profit by term B – G thousand rubles.
4. Achieving payback by deadline C.
5. Project funding is provided within the approved budget of Y.
6. 85% of specialists of the I and II qualification categories passed the test and were certified for the right to provide services “N” to the company’s clients by deadline D.
7. The breadth of use of service “N” by specialists of qualification category I and II by term E is at least 70%.
8. By deadline L, the number of calls to the company for service “N” reached the value of P calls per month.
9. The number of customer complaints in the business area decreased to level X by date T.

Please note that a number of criteria have the nature of milestones. Many of the listed parameters are essentially KPIs, which can be used to motivate workers involved in the project. I do not recommend using a large number of indicators to motivate project staff. For our example, at the PM level, I would leave two KPIs (points 1 and 3), and distribute the rest among the responsible executors. But I would reduce the total number of “salary” indicators to five.

Model of dependence of project management parameters on the number of indicators

The reason lies in the requirements for economy and consistency of the motivation system for personnel involved in the project. Employees included in the project team simultaneously perform work at their functional places. This should be remembered.

In this article we have touched on some very interesting issues. I feel the need to return more than once to the issue of the holistic nature of the BSC project, and to industry solutions in this area. It was completely impossible to think about the topic of translating down corporate goals, through project goals to key performance indicators. And since the development of project management doctrine is far from exhausted, and there are still a lot of “blank spots”, I am sure that this material on project motivation is just the beginning.

We continue the series of materials devoted to the KPIs of top managers responsible for various functions within the company. The theoretical basis of the KPI method has been outlined in previous publications, so this article provides only minimal explanations to facilitate a quick understanding of the material. Please note that all the examples given cannot be used in practice without appropriate adaptation to the specific conditions of a real enterprise.

First, let's look at what a project is. According to the definition from the fundamental book on project management methodology PMBOK (PMI standard), a project is a temporary sequence of work leading to the creation of a unique product, service or result.

All enterprise activities consist of projects and processes. The difference between these two activities is the result. In a project the result is unique, in the process it is cyclical and reproducible. It is the uniqueness of the result that brings project managers into a special category of hired workers inhabiting the business space.

In fact, the main task of all project managers is to ensure the achievement of a unique result with limited resources (time, material and human). Solving such a problem involves both an entrepreneurial and a managerial aspect. Despite the poet’s well-known statement that “you can’t harness a horse and a trembling doe to one cart,” this is what project managers basically do - they bring together the irreducible, organize everything that is poorly organized, and with a firm hand lead projects to successful completion.

The position of a project manager implies the presence of many competencies, in particular, the ability to plan and be guided by a plan in one’s actions, along with the understanding that life is much richer than ideas about it, and the willingness to make the necessary changes. It is extremely necessary for him to be “friendly” with numbers in order to reduce all the vaguely formulated expectations of the customer from the implementation of the project to specific criteria and indicators taken into account. In addition, the project manager must be a subtle psychologist. A project team often requires the presence of completely different specialists, who sometimes find it difficult to understand each other. It is the manager who is faced with the task of not only selecting a team and motivating all its members to perform specific professional tasks, but also organizing such interaction between them as to move the project forward and not lead it to a dead end.

Good project managers are expensive and are extremely rarely available on the labor market. Even during times of crisis, they remained in demand and highly paid professionals.

As already noted, project activities, being part of the overall activities of the organization, are also an agent of change. The uniqueness of a successful result involves reconfiguring the entire management system in such a way as to make a successful “test” part of the repeatable, cyclical work of the enterprise, that is, to integrate the results of the project into the company’s processes.

Why, in general, does the enterprise carry out its activities? Even without taking into account such concepts as “mission”, “vision” and “strategy”, it is clear that the owner of any business wants his enterprise to bring him a good guaranteed income in the form of profit. The results of the activity must justify the efforts and resources expended by the business owner, as well as provide him with sufficient well-being so that he continues to want to invest them in his enterprise.

Thus, each manager is required not only to ensure that project activities are carried out until the result is achieved, but also to stay within the project plan and budget, despite the unpredictability of circumstances (separately included in the budget in the form of calculated risks) and other “resistance of the material.” In addition, projects can be different, not all of them involve the company receiving irreversible profits. For example, investment projects involve returns within a certain time after achieving the main result. However, the implementation of most projects in commercial organizations is aimed at making a profit. In this regard, the main objectives for which a project manager is usually responsible are:

The tasks facing the project manager lead to key indicators that measure the effectiveness of his activities.

Typically, the project manager’s calculation scheme includes the following KPIs:

• profit;
• the size of deviations from the project plan and budget;
• the amount of overdue accounts receivable, if the manager was faced with the task of selling products created as a result of the project implementation

Profit KPI is often the so-called stop factor in the overall scheme. If it is not possible to achieve its planned value, this will lead to the absence or significant reduction of bonuses for achieving other KPIs.

The final bonus of the project manager is equal to the sum of bonuses for each of the KPIs. In this case, the bonus as a whole is awarded if a KPI is achieved, which is a stop factor (in this case, profit). If this KPI is not achieved, the bonus is not awarded, regardless of the achievement of other KPIs.

Bonus amount according to KPI Bi is defined as follows:

Bi = BF x Bi x min (KPIactual / KPIplan; 1) + VP, Where

BF– employee bonus fund;
Bi– the weight of the indicator in the employee’s scorecard;
KPIfact.– actual KPI value;
KPI plan.– planned KPI value;
VP– reward for over-fulfillment.

A KPI bonus is awarded if the percentage of KPI completion exceeds the threshold value (TV) and if the overall KPI is met.

The size of the bonus depends on the percentage of fulfillment of the established KPI and the weight of the KPI in the scorecard.

PMBOK – project management body of knowledge – is a regularly updated publication. Currently there is a fourth version, the translation of which into Russian can be found on the forum: microsoftproject.ru

Pushkin A.S., poem “Poltava”

This refers to commercial enterprises. In state companies and public organizations, the criteria for success are different. They are not discussed in this article to avoid lack of focus.

Typically, the expected return is measured through ROI - return on investment - an indicator of when and to what extent investors should wait for a return on invested funds before breaking even (full return of the invested funds) and then generating profit (receiving more than was invested) . Understanding ROI is very important in terms of investment priorities. So, at first glance, it may seem that purchasing several apartments in Moscow for the purpose of further renting them out could be a good investment. However, the current situation in the residential real estate market in Moscow is such that it is possible to compensate for investments in the purchase (return the funds spent - taking into account inflation, exchange rate differences and other factors affecting the absolute amount of funds) only after several decades, if there is no there will be dramatic changes (but they will most likely lengthen the return on investment, because the cost of housing in Moscow is greatly inflated compared to comparable housing in other civilized countries and cities. A manager involved in residential real estate must be well aware of all the features of the market so as not to disappoint investors.

The profitability of the project is so important for commercial organizations that in the event of a large number of force majeure circumstances that sharply increase the cost of the project, the manager can decide to terminate the project, and this will turn out to be much more effective than continuing it at any cost. Unfortunately, government agencies have a different attitude towards money, which is why project monsters appear that last for decades, giving rise to long-term construction projects that turn into abandoned objects if funding for unprofitable work is stopped. An example of this is the building of the Aganbegyan Academy, which has been sparkling with the remains of crumbling blue glass for thirty years now, in the southwest of Moscow. Another example of the constant burying of project funds in the ground is the long and persistent attempts of various Russian administrations to develop a depressed area between the two capitals - Moscow and St. Petersburg. Expressways, farms for retired military personnel, settlements for immigrants from the former Soviet republics - all these are projects that have attracted billions of dollars in investments, but have not given any tangible results, except for the launch of the high-speed Sapsan, and then with a lot of restrictions. The “ambush” is clear: two megacities, like two giant vacuum cleaners, are blowing out the population from the adjacent territories, making the uniform settlement of this zone unrealistic. The constant shortage of labor resources in both capitals is guaranteed to depopulate all the “Potemkin villages”

The project budget is based on standard profitability, but MP is often specifically motivated by the Customer to reduce costs in order to achieve the planned result at a lower cost.

This goal appears for those small enterprises that conduct explicit commercial projects that involve not only the development and creation of a product, but also its sale to the consumer.

Marina Vishnyakova,
"Human Resources Management Handbook"

To evaluate the work of a manager, you can implement a system such as KPI in the company. It has already proven itself well in the West and has been successfully used in Russia for several years now. The system can be used in small, medium and large businesses. With its help, you can identify weak links in the company’s work and build a long-term development strategy. The work of top managers is one of the most important components of success, and we will look at how a manager's KPI is measured.

Some features

It is important that the tasks assigned to the manager can be realistically accomplished. If the requirements are too high, the manager may simply give up immediately. To accurately assess a manager’s achievements, you need to take a time period of one year. This is the optimal period during which an employee can prove himself and achieve improved performance. It is best to combine personal indicators with general indicators, so the picture will be much more objective. General indicators refer to the data shown by the department. And the higher the level of the manager, the more important the general indicators are for assessing his work.

KPIs are always specific values ​​expressed in numbers. But you shouldn’t take many indicators at once, otherwise the result will be blurry. It is best to focus on 5 indicators - this number is optimal, according to experts.

Achievement Levels

For senior management, certain levels of achievement are established:

1. The minimum threshold below which bonuses are no longer accrued.
2. Target – the bar for paying out bonus money.
3. Exceeding. If a manager exceeds the target threshold, he is awarded an increased bonus as an incentive.

For the head of a department, the indicators could be, for example, the following:

• How the plan is being implemented.
• How reporting on documents is maintained and discipline is maintained in the department.
• How efficiently employees work.

Moreover, heads of different departments should set their own performance indicators that correspond to the direction of the department’s work. For example, some managers deal with personnel, while others deal with sales. For these people, naturally, the indicators will vary.

Eventually

The well-being of the entire company depends on the effectiveness of senior managers. Therefore, it is beneficial for the owner to introduce a KPI system to monitor the work of their managers and identify all their shortcomings. From this we conclude that the project manager’s KPI is a very important thing.

Hello! In this article we will talk about the KPI system.

Today you will learn:

1. What is KPI.
2. How to calculate this indicator.
3. How to implement a KPI system in an enterprise.
4. About the pros and cons of this system.

What is KPI in simple words

KPI - this is a coefficient that determines the efficiency of a particular enterprise: how well it functions and whether it achieves its goals.

The decoding of this abbreviation is as follows - Key Performance Indicators, which is usually translated into Russian as “key performance indicators”.

If translated literally, the word “key” means “key”, “significant”, “indicators” - “indicators”, “indicators”, but with the word “performance” difficulties arise in translation, since here it is difficult to interpret unambiguously. There is a standard that gives the most correct translation of this word, dividing it into two terms: efficiency and effectiveness. Efficiency shows how the funds spent and the results achieved compare, and effectiveness shows the extent to which the company managed to achieve the result that was intended.

Therefore, KPI is more correctly translated as “key performance indicator”. In simple terms, for dummies, so to speak, you can see that this system helps you figure out what measures need to be taken to improve efficiency. Efficiency covers all actions performed over a specified period of time, as well as the benefits received by the enterprise from each individual employee.

KPI indicators are as follows:

• Performance KPIs- shows the ratio of the spent monetary and time resources with the achieved result;
• Cost KPI- shows how many resources are used;
• KPI result- illustrates the result obtained during the execution of tasks.

Because this system is not easy to implement, you should adhere to certain rules and principles that can become indispensable assistants when switching to KPIs:

1. The 10/80/10 rule. It states that a company must define 10 key performance indicators, 80 performance indicators, and 10 performance indicators. It is not recommended to use many more KPI indicators, because this risks overloading managers with unnecessary unnecessary work, and managers will certainly be preoccupied with finding out the reasons for non-fulfillment of indicators that have little impact on performance in general.
2. Alignment of performance indicators and strategic plan. Performance indicators have no meaning unless they are related to the current Critical Success Factors (CSFs) integrated into the Balanced Scorecard (BSS), and.
3. Manageability and controllability. Each division of the company responsible for its indicator must be provided with resources to manage it. The result must be controlled.
4. Integrating performance measurement, reporting and performance improvement processes. It is necessary to introduce a process for evaluating performance and reporting that will push employees to take the specific actions required. For this purpose, reporting meetings should be held to consider the issue being resolved.
5. Partnership. To successfully increase productivity, it is worth ensuring partnerships between all employees involved. Therefore, the way to implement the new system must be developed together. This will allow everyone to understand what the advantages of innovation are, and also to be convinced of the need for change.
6. Shifting efforts to the main directions. To increase productivity, it is necessary to expand the powers of specialists: help in, offer to develop your own KPIs, provide training.

How to calculate KPI

Paragraph 1. To calculate KPI, you need to select three to five performance indicators that will be the specialist’s assessment criteria. For example, for an Internet marketer they could be as follows:

1. The number of site visitors attracted by a specialist.
2. A figure that shows how many purchases were made by customers who had previously contacted the company.
3. The number of commendable recommendations and customer responses on social networks or on the organization’s website after purchasing a product or service.

1. new customers - 0.5;
2. customers who made a repeat order - 0.25;
3. positive recommendations - 0.25.

Point 3. Now you need to analyze the data on all selected indicators for the last six months and make a plan:

Point 4. The next stage is the calculation of KPI indicators in Excel. It is necessary to use the formula for calculating KPI: KPI index = KPI weight*Fact/Goal.

Here, the goal is the indicator that the employee must achieve according to the plan, and the fact is what he has achieved in reality. The final figure is 113.70%, this is a good result, however, if you look at the table in more detail, you can see that the marketer did not fully fulfill the planned standards.

Point 5. We calculate wages. We will rely on the fact that the marketer’s total earnings are $800, of which the fixed part (salary) is $560, and the variable part (bonus) is $240. For a 100% index, the employee is entitled to a salary and a full bonus, but due to the fact that the plan is exceeded, the marketer will receive additional bonuses in the amount of 13.7% of the bonus, that is, $32.88. As a result, the employee’s salary will be $560+$240+$32.88=$832.88.

But when an employee does not fulfill the plan, and his performance indicator is below 99%, the bonus amount is proportionally reduced.

With the help of such calculations and drawing up a table, you can see the problems and difficulties that an Internet marketer faces.

Low performance may be due to the fact that the plan was drawn up incorrectly or the loyalty strategy itself is incorrect. The problem area needs to be monitored, and if things do not improve over time, then the right way out of the situation is to change the performance indicators.

Thanks to this approach, an understanding of the operating principle of KPIs is formed. Based on goals, the calculation can be supplemented with new values. This could be a system of fines, the number of solved and unsolved problems, and much more. For example, if less than 70% of the work according to plan is completed, the employee will not receive a bonus at all.

There is also an alternative way to calculate wages relative to the percentage of plan completion:

KPIs in practice

KPI performance indicator is used by almost all companies that engage in direct sales. Let's look at some examples for a sales manager. Having adopted the approved key indicators, he will see a clear picture of his activities: it will become clear to him how many goods need to be sold in order to reach a certain income, which ones.

For an insurance consultant who is new to the profession, the optimal efficiency ratio would be 1/10: to sell one insurance policy, you need to meet with 10 potential buyers.

There is also a KPI result, for example, “the number of new clients is not less than n”, “sales volume is not less than n”, etc. These indicators are personal, and it is better when their number is less than 5, and most importantly, they should be easily measurable and clearly formulated.

In addition to motivating employees, company managers use KPIs as a tool for analyzing the work of their subordinates.

This system allows you to clearly see gaps in activity and at what stage they arose. For example, the boss monitors the manager’s client base and how many calls and meetings the employee makes. If these indicators are met to a sufficient extent, but there are few sales, we can conclude that the employee lacks certain knowledge, skills or personal qualities to perform successfully.

KPI and enterprise planning

KPI indicators can be used in planning and monitoring activities. After the work has been done, actual indicators are measured, and if they seriously deviate from the planned ones and not for the better, then further activities are analyzed and adjusted. Since all indicators are “dictated” by the real process, and not invented independently, such planning will contribute to the achievement of the necessary goals of the organization.

How to motivate staff to achieve KPIs

Thanks to the use of the KPI system, when paying wages, planned and actual indicators are recorded. This gives the manager a clear understanding of how to motivate an employee and for what. At the same time, the employee also clearly sees the pros and cons of his work and is aware of what actions can bring him reward and what penalties are due.

For example, an insurance consultant sold more insurance policies than planned and expanded his client base with many new clients. Thus, he exceeded the plan and, in addition to his salary, will receive a bonus in the form of a bonus. On the other hand, if the same manager sold much less policies than planned, he may completely lose his bonus and receive a “bare” salary, because his personal performance will be low.

However, you can motivate employees not only with money.

For meeting targets, you can be rewarded with interesting training paid for by the company, unscheduled days off, gifts and other “carrots” that will inspire the employee just as much as money. But in this case, the employee’s salary is always fixed, and according to the KPI system, points are calculated that the employee can exchange for the desired bonuses.

To create KPIs for employees, you need to focus on a common goal for all employees and strong motivation. Working in a team of interested specialists, like clockwork, can quickly lead a company to achieve all its goals.

In what cases is KPI not needed?

In a young company that has just begun its existence, it is not advisable to introduce a KPI system. The management system here has not yet been formed, and successful development is due to the work of the general director. Most often, he also performs the functions of finance and personnel specialists.

And also, you should not implement KPIs in those departments that, because of this, may negatively affect other departments of the company. For example, an IT service, whose representatives must solve the problems assigned to them (repair of office equipment) as quickly as possible. After all, it happens that one of the employees’ computer breaks down and work stops, and the entire department depends on the work of this employee.

If the salary of an IT specialist is calculated according to the KPI system, then he will not go to work right away. First, you need to submit a request to fix the breakdown. This application must be approved by a senior IT department specialist, after which the task is queued for implementation and awaits consideration.

As a result, a task that requires 5 minutes to complete takes much more time, during which time the work of the entire department, where one computer has broken down, does not move at all.

That is why it is useful to implement a KPI system wisely, otherwise it can do a lot of harm.

Errors when implementing KPIs

The most common mistake is introducing KPIs for statistics alone.

Ultimately, it turns out that the indicators of one division have no connection with the indicators of another.

For example, the supply department of one enterprise needed to reduce costs. Therefore, in order to receive raw materials at a discount, employees purchased them in large volumes, and also purchased defective goods. This led to overcrowding of warehouses, freezing of finances in raw materials, which blocked all the advantages.

Meanwhile, the production department had its own priority indicator - the load factor of production equipment. To use time efficiently, employees produced certain products in large quantities to save valuable minutes on machine conversions. But this inevitably affected the fulfillment of the sales plan by the commercial department, because there was no necessary assortment, and at a specific period of time the client could only purchase one type of product.

As a result, a situation has arisen where everyone pulls the blanket on themselves, and no one achieves the goal. The result was reduced to zero, and all the work was done in vain.

Another common mistake is focusing exclusively on material indicators that are the result: sales level, income, etc. However, only when key indicators are not financial, but proactive, can goals be achieved much more effectively.

For example, how many calls should a sales manager make, how many meetings should he hold, how many contracts should he conclude in order to achieve that same resulting KPI? It is on the basis of such non-financial factors that the employee motivation system should be built, and department heads should focus directly on financial ones.

And also a serious mistake would be a situation where the persons responsible for a particular indicator are not identified. For example, the incentive procedure does not imply bonus payments or their reduction by the manager for fulfillment or non-fulfillment of the plan. In this case, the boss cannot be responsible for the actions of his subordinates, because he has no opportunity to influence them.

Pros and cons of implementing a KPI system

Working according to the KPI system has many advantages:

• It has been established that in companies with such a system, employees work 20-30% more efficiently.
• Specialists will clearly understand which tasks are priority and how to complete them.
• With a well-implemented system of indicators, monitoring the company’s activities is greatly facilitated, thanks to which problems are detected already at the stage of their occurrence and are resolved before they can cause harm.
• When calculating wages, the principle of fairness applies: those who worked diligently receive more. This allows the organization to retain valuable talent.
• The wage fund becomes a means of motivating staff, and not the main source of expenses.

The KPI system also has disadvantages. First of all, the disadvantage is that a lot of time and effort is spent on implementation, because all indicators need to be worked out in detail. Most likely, it will be necessary to retrain employees, explain to them information about changing working conditions and new tasks.

However, the main disadvantage is that the effectiveness is not always assessed correctly. This can be avoided if, at the stage of system development, the criteria by which the assessment will be carried out are flawlessly formed.