Exhibits on Key

Performance Indicators :
The Balanced
Scorecard Approach

www.mpc.gov.my
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Content :
Introduction

What are KPIs?

Why we need KPIs?

What are the characteristic of KPIs?

How to develop KPIs?

10

What is Balanced Scorecard? A tool to develop KPI

12

Learning and Growth Perspective

KPI Samples : Learning and Growth
Business Process Perspective
KPI Samples : Business Process Perspective
Customer Perspective
KPI Samples : Customer Perspective
Financial Perspective
KPI Samples : Financial Perspective

13
14
18
19
30
31
34
35

Conclusion

40

References

41

Introduction

The key to success of a business or an organisation is dependent on good

management information which allows the organisation to monitor and evaluate
the progress they made. Today, whether we are in the private or public sectors,
most of us are concerned with our performance. Organisations across the nation
are shifting from just seeing themselves as accountable for creating and carrying
out activities to being responsible for achieving results meeting goals, fulfilling
the objectives, and improving the quality of their services.

In an ideal world, organisations would all have vision, mission, goals and
objectives. Flowing from those would be the organisations Key Performance
Indicators (KPIs), the measures by which the organisation knows whether it is
successful or not. KPIs is one important tool both for translating strategy (vision
and mission) into action and for monitoring progress at a strategic level. When an
outcome is monitored and trended with a KPI, the resulting figure tells you the
process performance effectiveness.

Many things in the organisation are measurable. That does not make them key to
the organisation's success. In selecting Key Performance Indicators, it is critical
to limit them to those factors that are essential to the organisation reaching its
goals. It is also important to keep the number of Key Performance Indicators
small just to keep everyone's attention focused on achieving the same KPIs.

Whatever Key Performance Indicators are selected, they must reflect the
organisation's goals, they must be key to its success, and they must be
quantifiable (measurable). Key Performance Indicators usually are long-term
considerations. The definition of what they are and how they are measured do
not change often. The goals for a particular KPI may change as the
organisation's goals change, or as it gets closer to achieving a goal.

What are KPIs?

Key Performance Indicators (KPIs) provide a series of measures against which

internal managers and external investors can judge the business and how it is
likely to perform over the medium and long term. The importance of KPIs is that
they help a company to assess how it is operating in terms of the targets that it
has set itself, and they can act to incentivise superior performance. In other
words, KPIs help companies to understand how well they are performing in
relation to their strategic goals and objectives. In the broadest sense, a KPI can
be defined as providing the most important performance information that enables
companies or their stakeholders to understand whether the company is on track
or not. This is the same approach that we use in our daily lives. For example, we
will refer on blood pressure, cholesterol levels, heart rate and body mass index
as key indicators of our health. It is the same approach of using KPIs in the
company.

Figure 1 : KPIs lead to continuous improvement.

KPIs are metrics used in performance dashboards/scorecards, which measures

how well the organisation, business unit or individual is performing against
predefined goals and targets, KPIs help organisations achieve organisational
goals through definition and measurement of progress. Some general principles
regarding the KPIs should be taken into consideration during their application :

They should be seen within their local context and have more meaning as
a comparison over time than as a comparison between organisations.

Once again, a set of performance indicators should be balanced. For

example, measures of effectiveness and measures of cost against quality
and others.

After being proposed and applied, KPIs should ne reviewed and updated.

The targeted performance description, which is described in measurable

terms through KPIs, must be deployed to the organisational level that has
the authority and knowledge to take the necessary action.

Every initial proposal for KPIs is expected to be imperfect. However, it is

important for the organisations to understand and apply the appropriate
KPIs so that they can develop some experience in using them, from which
they can derive real expertise.

Figure 2 : Performance Measurement will answer these questions.

How well are we doing?

Are we meeting our goals?
Are our customers satisfied?
Are our processes in statistical control?
Where do we need to improve?
Where do we stand in comparison to our goals and objectives?
Where do we stand in comparison to our competitors?

Why we need KPIs?

There are two main reasons each company has to measure its performance. It
includes learning and performance improvement and is to control and monitor
people. Measuring for learning and improvement is the most essential form of
using KPIs, with the aim to equip employees with the information they need in
order to make better informed decisions that lead to improvements. KPIs can
also be used to guide and control employees behaviors and actions. Here,
measures are used to set goals or rules, to objectively access the achievement
of these goals, and to provide feedback on any unexpected variance between
achievements and goals. Of these two, the first is the most important and the
second can cause major problems. Without KPIs, employees and business
managers would have to extract performance data and evaluate that data against
goals, and then spend the time to present that data in a separate report for
business decision makers. It is difficult to get timely status without a way to
quickly and automatically evaluate live data.
Figure 3 : Reasons to have Key Performance Indicators (KPIs)

What are the characteristics of KPIs?

For a set of KPIs to help drive business performance, they must have a variety of
characteristics.

KPIs Must Be Easy to Comprehend

One problem with most KPIs is that there are too many of them. As a result, they
lose their power to grab the attention of employees and modify behavior. More
KPIs than this makes it difficult for employees to peruse them all and take
requisite action. In addition, KPIs must be understandable. Employees must
know whats being measured, how its being calculated, and, more importantly,
what they should do (and shouldnt do) to positively affect the KPI.

KPIs Are Always Relevant

To ensure that KPIs continually boost performance, you need to periodically audit
the KPIs to determine usage and relevance. If a KPI isnt being looked at, it
should probably be discarded or rewritten. In most cases, KPIs have a natural
lifecycle. When first introduced, the KPI energises the workforce and
performance improves. Over time, KPIs lose their impact and should probably be
revised. Most organisations review and revise KPIs quarterly.

KPIs Provide Context

Metrics always show a number that reflects performance. But a KPI puts that
performance in context. It evaluates the performance according to expectations.
The context is provided using 1) thresholds (i.e. upper and lower ranges of
acceptable performance), or 2) targets (i.e. predefined gains, such as 10% new
customers per quarter), or 3) benchmarks, which can be based on industry wide

measures or various methodologies, such as Six Sigma. In addition, most KPIs

indicate the direction of the performance, either up, down, or static.
KPIs are understood by staff
A KPI should make clear what action is needed. In the case of an airline that was
having a problem with late planes, a KPI communicated immediately to all staff
that there needed to be a focus on recovering the lost time. Cleaners, caterers,
ground crew, flight attendants and liaison officers with traffic controllers would all
work some magic to save "a minute here and a minute there" while maintaining
or improving service standards.
KPIs have a significant effect on the organisation
A KPI will affect most of the critical success factors (CSFs) and more than one
balanced scorecard perspective. In other words, when the management team
focuses on the KPI and the staff follow, the organisation scores goals in all
directions.
KPIs have a positive effect on other measures
A KPI has a flow-on effect on other performance measures. Reducing late planes
would improve performance measures around improved service by ground staff
as there is less "firefighting" to distract them from a quality and caring customer
contact.

Figure 4 : KPIs can shed the light for us

Consider these :
A customer service manager tracks customer
service quality using surveys. If the surveys
suggest that service is dropping, he might need to
add more account representatives to improve
service levels.
A benefits administrator monitors how many claims
her group has processed in the previous year. An
increase, for example, may suggest it is time to
invest in new benefits software that can speed up
claims processing.
A human resource staff calculates the percentage
of employees who actually attend voluntary training
programmes offered by the company., and
compares the result against the targeted
percentage. A drop may indicate the programme is
unsuccessful and can prompt an inquiry to find out
why possibly saving the company thousands of
dollars in ineffective training programmes.
A communication expert reviews employee survey
results to find out whether workers understand the
companys corporate strategy. Lack of
understanding may suggest the need for clearer
presentations on strategy by the companys CEO
and other executives or the need to reach
employees through different channels.

How to develop KPIs?

The key to selecting KPIs lies in selecting indicators that are quantifiable, and
critical to the companys goals. KPIs have to be specific and capable of
measurement. It is no recommended having KPIs that say :

We want to increase employees satisfaction.

We want to increase revenue.

They would need to be along the lines of :

We want to achieve a score of 97% 'very satisfied' or 'satisfied' in our

2011 employees satisfaction surveys.

We want to achieve RM1 million revenue of our product by the end of

2011.

Developing KPIs needs to be a consultative process which involving as many

people as is practical. Time must also be spent educating and explaining the
purpose of KPIs to all staff. This will lead to have mutual understanding from the
top level of management to the bottom line of business operation staff. When
looking at company performance, it is necessary to strike the correct balance
between the three main stakeholders/customers, and therefore it can be
challenging.

Figure 5 : KPIs development should consider the correct balance of the three
stakeholders.

10

As a starting point in developing KPIs, it is recommended to use the SMART

concept :
Specific
Measurable
Achievable
Result-oriented or relevant
Time-bound
Developing and selecting the right key performance indicators however, is only
half the battle. As a manager one must also know how to handle these indicators
effectively. Apart from setting targets (such as achieving 10% revenue growth per
quarter), the indicators can be used as mini targets themselves to continuously
monitor progress as well as maintaining momentum. With the right approach, KPI
can be the stimulus as well as the benchmark to the company.
Figure 6 : SMART concept in developing KPIs

11

What is Balanced Scorecard? A tool to develop KPI

The balanced scorecard (BSC) was developed by Kaplan and Norton since in the
early 1990s to help organisations succeed by embedding a strategy of balanced
focus and performance monitoring into the heart of organisational culture. The
BSC framework starts with an organisations building its vision and strategy. The
framework uses scorecards to show progress on the strategy. It is a
management system that maps an organisation's strategic objectives into
performance metrics in four perspectives namely, financial, internal processes,
customers and learning and growth. These perspectives provide relevant as to
how well the strategic is executing so that the adjustment can made as
necessary.

Figure 7 : BSC framework highlights the four perspectives

(adapted from

Balanced Scorecard Norton & Kaplan)

12

Balanced Scorecard views the organisation from four distinct perspectives.

Detailed below are the components that make up each perspective and example
of Key Performance Indicators for each perspective:

Learning & Growth Perspective

Employee training

Corporate culture attitudes on individual and corporate self improvement

Knowledge worker organisation with people as the repository of

knowledge

Continuous learning mode of operation driven by rapid technology

advancements

Learning is more than training (for example, it includes mentors and tutors,
ease of communication, etc.)

Learning and growth constitute the essential foundation of success for any
knowledge-worker organisation

Utilisation of technology tools, high technology work systems (for

example, the intranet)

13

KPI Samples : Learning and Growth

Nos.

Key Performance Indicators

Definition

Formula

1.

Management Ratio

This indicates the ratio between total number Total Number of Headcount / Total number
of headcount as compared to the total
of Executive & Above
number of Executive and above level.

2.

FTE Employees per FTE Full

Time Manager

This indicates the number of employees to

each manager. It enables organisations to
consider the appropriateness of their level of
management and supervision.

Total Number of Headcount / Total Full

Time Manager

3.

Voluntary Turnover Rate

This indicator captures the percentage of

people leaving the company (trends) which
in return may reflects the organisational
systems, culture and practices.

(Total Voluntary Turnover / Total Number of

Headcount) X 100

4.

Training Headcount Investment

Ratio

This indicates the businesss investment in

its employees in terms of providing
appropriate training to its staff.

Total Training Cost / Total Number of

Headcount

5.

Sick Leave Factor

Is the time off from work that workers can

use during periods of temporary illness to
stay home and address their health and
safety needs without losing pay.

((Total Sick Leave) / (Total Number of

Headcount) / (Total Number working days))
X 100

6.

Healthcare Costs

The actual costs of providing services

related to the delivery of health care,
including the costs of procedures, therapies,
and medications. It is differentiated from
health expenditures, which refers to the
amount of money paid for the services, and

Total Healthcare Costs / Total Number

Headcount

14

Nos.

Key Performance Indicators

Definition
from fees, which refers to the amount
charged, regardless of cost.

Formula

7.

Time to Fill an Open Position

The activities to fulfill the whole exercise

activated from the date when headcount
requisition have been approved by
management and received by HRD
Department to the physical reporting date.
Excluding freezing mode of hiring.

Total working days to fill position / Total

headcount hired

8.

Cost Per Hire

All variable recruitment costs incurred from

headcount requisition approval to
candidates physical reporting. Eg. : Variable
cost: advertisement, referral, interview
booth, employment screening, banner, etc.
Excluding hiring incentive such as sign-on
bonus, ex-gratia payment or head hunter
fees and salary in lieu of notice and any or
the monetary fringe-benefits.

Total recruitment costs / Total headcount

hired

9.

Medical Cost per Employee

Medical fees (employees, dependents,

specialist consultation), Insurance H/S
(employees, dependents), In-house clinic
expenses (nurses/in-plant consultation).
Exclude employment screening & FOMEMA

Total medical costs / month-end headcount

10.

MC Rate

The number of days of sick leave, SOCSO

leave, hospitalisation leave except those
greater than 60 days entitlement.

(Total MC days / (Total working days per

month X Month-end headcount)) X 100%

11.

Absenteeism Rate

A measure of absenteeism that includes

both authorised and unauthorised sickness

(Total absenteeism days / (Total working

days per month X Month-end headcount)) X

15

Nos.

Key Performance Indicators

Definition
related absence form work.

Formula
100%

12.

Sales per Employee

This indicates employee productivity. It is

Total sales / Total number of FTE
calculated as ratio of turnover (sales) divided employees
by the total number of FTE employees.

13.

Labour Cost per Sales

This measure indicates total cost paid to

employees as compared to the total sales
generated by the workers.

14.

Employee Turnover Rate

This measure provides an obvious indication (Total number of employees resigning or

of employee satisfaction. A high employee
being terminated / Total Number of
turnover is often linked to low employee
Employees) X 100%
productivity and usually results in high costs
due to the requirement for training new
employees. A very low turn-over may inhibit
innovation and creativity, and also lead to
succession issues due to age groups moving
up the organisation structure. The measure
can be tailored to assess individual
departments, functions, or roles.

15.

Recruitment Headcount Factor

Total recruits (internal) is total number of

internal recruits whether by transfer,
promotions within the organisation. External
recruits relate to the new or replacement
vacancies which have been filled. The word
'recruits' refer to people who report to work.

(Total number of recruitments / Total

number of headcounts) X 100%

16.

Training Hours Ratio

Training hours refer to the total hours of inhouse and external training provided to
employees during the year.

Total training hours (inclusive of OJT) /

Total number of headcounts

Gross salary / Total Sales

16

Nos.

Key Performance Indicators

Cost

Definition

Headcount This indicator reflects the organisational

commitment toward employees'
development. On a macro level, it provides
glimpses of learning culture within the
organisation itself.

Formula

17.

Training
Factor

Total training cost (inclusive of any training

cost that can be tracked, i.e. allowance paid
to OJT trainers, refreshment, etc.) / Total
number of headcounts

18.

Staff Cost Growth

This indicates the increase/decrease in staff

costs of the business last year, compared
with the previous-to-last year.

19.

Cost Labour

This measure reveals labour costs relative to Total labour costs / total sales revenue
overall sales revenue. It determines how
efficiently a business is operating and also
helps to make more informed decisions
regarding potential human resources
changes.

20.

Human Resources Expense

percentage

This measure monitors the cost of the HR

departments in comparison to the total
expenses of the organisation. This measure
can be used to show the HR Department
contribution to the effectiveness an
organisations and its overall strategies.

21.

Training Frequency of new

programmes

A measure that indicates the frequency with Number of training programmes introduced
which new training programmes are made
per period
available. This can indicate the effort that the
organisation applies to the development of
its human resources.

((Staff cost last year) (Staff cost previousto-last-year) / Staff cost previous-to-lastyear)) X 100%

Direct HR costs / Operating expenses

17

Business Process Perspective:

This refers to internal business processes

Metrics are used in this perspective to determine how well the

organisations businesses are running

Determine whether the businesses products and services conform to

customer requirements (the Mission)

Metrics must be carefully designed by those who know the business

processes best

Typically there are 2 types of business processes relative to BSC:

a) Mission Oriented Processes that are special functions of major lines of
business. Typically this requires specialised metrics.
b) Support Processes that are the day-to-day processes that support the
business and organisation. Typically they can be measured and
benchmarked with generic metrics.

18

KPI Samples : Business Process Perspective

Area : Production
Nos.

Key Performance Indicators

Definition

Formula

1.

Production down time - Total

This measure provides a measure of the

total stoppage time by plant, area, unit
and/or machine.

Down time due to all causes as a % of total

time

2.

Re-work - Time

A measure of the re-work created as a

consequence of production. Re-work does
not normally include items that are scrapped
- this depends upon an organisation`s
definition of scrap.

Hours of re-work required as a % of total

hours worked per batch or period

3.

Production process time

A measure which provides an input into the

analysis of cycle time and the analysis and
understanding of processes in general.
Measures per batch or individual item.

Time taken from introduction of raw material

into process to finished product made with
the same batch of raw material

4.

Waste reduction

A measure that tracks progress in reducing

waste

% of total waste (in tonnes) reduction per

unit of production during previous period

5.

Plan or schedule adherence

A measure that provides an indication of the

effectiveness of production (or other)
scheduling.

No. of schedules changed (brought forward

or back) per period as a % of total no. of
items scheduled per period

6.

Production to delivery ratio

A measure that provides an indication of the

proportion of lead time that is due to
production. This can be helpful when
designing or analysing delivery schedules.

Total production lead time as a % of total

delivery lead time

7.

Hours Per Vehicle

Hours Per Vehicle is an indicator that

19

Nos.

Key Performance Indicators

Definition
represents all hours worked and all units
buits. It is calculated using total actual hours,
including paid lunches & breaks, divided by
the actual production in the time studied.

Formula

8.

Total Plant Size

Total Plant Size is the total plant size under

roof, including the press room, metal
assembly, maintenance area and all other
common areas

9.

Major Press Lines

This indicator represents the total number of

active and idle press line.

10.

Blanking & Major Press

This indicator indicates on-roll employment

including hourly (direct and indirect labor)
and salary employees as well as the normal
daily total absenteeism for the blanking and
major press/progressive areas only.

11.

Major Press Pieces

This indicator includes the number of pieces

produced for tandem, transfer and major
progressive lines.

12.

Scrap or Yield Loss PPM

Scrap or yield loss caused by errors NOT

design scrap or unavoidable material loss. If
you make large expensive items, define
Scrap as Percent of material or components
that were spoilt during processing

13.

Cost - Production staff

These measures provide an indication of the Wage or salary cost of production staff per
cost of personnel as a proportion of output or unit of output or unit of sales unit value.
sales value of production.

20

Nos.

Key Performance Indicators

Definition

Formula

14.

Orders - Backlog
(manufacturing)

This measure provides an indication of how

closely sales orders have been aligned to
existing production schedules and/or
production capacity.

No. of complete orders not yet scheduled

15.

Repair time

This measure provides an analysis of the

maintenance time per type of machinery or
equipment, this can be used in conjunction
with reliability analysis of the machine or
equipment in production planning.

Average time spent on repairs to specific

machinery.

16.

Batch size

A measure that offers an input to inventory

level strategy design and inventory
performance analysis. It can also be a
significant factor in cycle time analysis.

No or volume of product(s) per production

run

17.

Takt time

This is a measure of planned time between

completion of units in a production system.
Many organisations utilising just-intime/continuous-flow manufacturing systems
use this measure in process planning
analyses.

Working time available / Production

demand capacity

18.

Assembly Set-up Time

This indicates time taken, in minutes, for a

typical changeover between products or
batches in assembly / packaging production
e.g. reset time, change tools, clean etc.

19.

Not Right First Time (part per

million)

This indicates the product's ability to match a (Assembly Set-up Time (minutes) / Product
specification and is expressed in 'number of to Market (months)) X 1,000,000
defect parts per million'. A 'defective unit' is a
unit that does not conform to specification

21

Nos.

Key Performance Indicators

Definition
and may be scrapped or reworked part. The
calculation can be applied to internal defect
rates and external defect rates.

Formula

20.

Stock Turnover (number)

This indicates the number of times stocks

Cost of Bought-in Materials and Services /
are turned over during a year. The higher the Stock
stock turnover the better, because money is
then tied up for less time in stocks. A quicker
stock turnover also means that the firm gets
to make its profit on the stock quicker, and
so the firm should be more competitive.

21.

Finished Goods to Stock (%)

This indicates the percentage of total stock

that is made up finished goods stock.

(Finished Goods / (Raw Materials + Work in

Progress + Finished Goods)) X 100

22.

Work in Progress to Stock (%)

This indicates the percentage of total stock

that is made up of work in progress stock.

(Work in Progress / (Raw Materials + Work

in Progress + Finished Goods)) X 100

23.

Raw Materials to Stock (%)

This indicates the percentage of total stock

that is made up of raw materials (or pre
process) stock.

(Raw Materials / (Raw Materials + Work in

Progress + Finished Goods)) X 100

24.

Product Lead Time per Order

(days)

This indicates the business's efficiency in the Total Product Lead Time for all Orders /
ability to deliver its orders. It is the average
Delivery Schedule Deviation
time between the placing of an order and the
receipt of the good ordered.

22

Area : Supplier Performance

Nos.

Key Performance
Indicators

Definition

Formula

1.

Supplier Effectiveness

This indicates the average value of business for

each supplier. A lower figure either demonstrates
a need for reducing suppliers or few suppliers are
able to offer the service that meets the
organisation's needs.

(Cost of Bought-in Materials and

Services / Number of Suppliers Used for
Delivery of Core Products and Services)
X 1,000

2.

Percentage of Supplies
Delivered on Time (%)

This indicates the ability of the business's

suppliers to deliver on time as a percentage of
total purchases. A higher figure demonstrates use
of reliable suppliers.

(Supplies Delivered on Time / Cost of

Bought-in Materials and Services) X
100

3.

Percentage of Sub Standard

Supplies (%)

This indicates the ability of the business's

suppliers to deliver quality goods as a percentage
of total purchases. A lower figure demonstrates
use of reliable suppliers

(Supplies which are Sub-Standard on

Delivery / Cost of Bought-in Materials
and Services) X 100

4.

Supplier involvement

A measure which provides an indication of the

Percentage of the customers product
strength of the supplier relationship. Involving
development process in which the
suppliers in product and process development and supplier is involved
utilising their knowledge can bring benefits to the
organisation, the customer, and the supplier.
Supplier involvement could be measured through
a number of ways, in addition to the formulae
offered an assessment of how closely the
development team works with suppliers or
average no. of hours of supplier contact in this
process could be used.

23

Nos.

Key Performance
Indicators

Definition

Formula

5.

Cycle time - Invoice

This measure can be used to indicate the

efficiency with which invoices are dealt. An
important area to watch as it can have significant
effect upon supplier relationships or on cash flow
levels, depending on whether measuring the
payment of invoices, or invoices being paid.

Time from order placement to payment

made or received

6.

Supplier Certification

A measure that monitors the % of certified

suppliers. The certification standard is typically set
or specified by the purchasing organisation.

No. of suppliers that are certified as a %

of total no. of suppliers

7.

Supplier - Lead time

A measure of supplier lead-time.

Time from placing an order to actual

delivery from supplier.

8.

Cycle time - Cash to cash

Cash-to-cash cycle time is a supply chain

management performance measure; when there
are fewer partial shipments and fewer shipments
with defects or other errors, customers pay faster,
and accounts receivables are reduced. Note : with
the reduction in inventory cash-to-cash cycle time
is reduced even without an increase in payment
terms from suppliers.

Cash-to-cash cycle time is the number

of days between paying for raw
materials and getting paid for product

9.

Plan or schedule stability Supplier

Schedule stability measures the degree to which

plans or schedules given to suppliers change
before they are converted into orders. The
measure reflects the accuracy with which the
organisation can predict its future requirements.

% or plans or schedules given to

suppliers that do not change

10.

Supplier - Delivery lead time

A measure of lead-time. Delivery lead time

measures how quickly a supplier can deliver the

lapsed time from receipt of customer

24

Nos.

Key Performance
Indicators

Definition
required finished product or service to the
organisation.

Formula
order to product or service delivery

Area : Counter Service

Nos.

Key Performance Indicators

Definition

Formula

1.

Total Average Number of Customers at

Counters (Per day)

Total Average Number of Customers Attending to Counters per day

2.

Total Number of Counter Staffs on duty

at Counter (Per day)

Number of Counter Staffs on duty at respective counters per day.

3.

Total Average Number of Training Days

Given to Counter Staffs (Per year)

Average number of training days given by

management to counter staffs to enhance their
skills and knowledge

4.

Average time for one transaction

between customer and counter staff at
counter (Per day)

Average transaction time to handle one

customer at counter

5.

Total Budget Allocation / Spent on

Counter Staff's Training (Per Year )

Budget allocation spent on counter staff's

training per year

6.

Number of appreciation letters received

by customers on counter services (Per
year)

Number of appreciation letter by customers to

acknowledge good and efficient services

7.

Total number of customers complaints

received on counter services (Per

Total number of customers complaints

received on counter services per month

25

Nos.

Key Performance Indicators

month)

Definition

Formula

8.

Total number of Percentage Customer's Total percentage taken to solve customer's

Complaints Solved (Per month)
complaint's per month

9.

Total Monetary Incentives given to

Counter Staffs (Per month)

Monetary incentives provided or specifically

given to counter staffs

Area : Innovation
Nos.

Key Performance Indicators

Definition

Formula

1.

Innovation - Idea conversion

rate

The idea conversion rate measures the rate at

which new ideas are assessed and implemented
successfully through improvement initiatives or
directly on at the point of operations

% of ideas or suggestions that are

implemented or acted upon

2.

Innovation - Intensity

A measure that provides an input to the

assessment of the effectiveness/performance of
the product/service development process.

No of new products introduced over

period divided by no of employees

3.

Innovation - Idea generation

rate

A measure the organisation`s ability to generate

new ideas.

Number of ideas or suggestions for

improvement received monthly

4.

Innovation - New product

reliance

A measure that indicates the importance or

Number of improved or new products
reliance on new products as opposed to
in period as a % of total no. of
unchanged established products, it is also useful
products (product range) over period
in the assessment of the
effectiveness/performance of the product/service
development process. The relevance of this
measure will of course be influenced by the nature

26

Nos.

Key Performance Indicators

Definition
of the product and/or targeted market.

Formula

5.

Innovation - Dedicated
research time

A measure that indicates how far the leadership is Percentage number of employees
prepared to go to create a culture of innovation.
formally devoting time regularly to
This can be a useful benchmarking measure when researching new ideas
assessing the innovation intensity of an
organisation.

6.

Innovation success rate

This measure provides an indication of the

success rate of innovative improvements
implemented within the organisation in terms of
having a positive impact on the business.

% of innovations that make a positive

impact on the business

7.

Innovation - New
product/process introduction

This measure can provide an organisation with an

indication of the level of innovation or the level of
success of any new innovation focus.

No. of new products or processes

introduced per annum or period

8.

Innovation - Patents

A measure that provides an input to the

assessment of the effectiveness/performance of
the product/service development process.

Number of new patents obtained over

specific period.

9.

Research & Development

(R&D) - Rate of investment

A measure that provides an input to the

assessment of the effectiveness/performance of
the product/service development process.

Amount of investment in R&D over a

given period at a given frequency.

10.

Research & Development

(R&D) - Financial resource
allocation

A measure that provides an input to the

assessment of the effectiveness/performance of
the product/service development process.

Expenditure on R&D as a % of total

amount of expenditure

27

Area : Safety
Nos.

Key Performance Indicators

Definition

Formula

1.

Lost Time Injury Frequency

Rate LTI

Frequency Rate for Lost Time Injury is the

number of LTIs per one million hours
worked.

(Number cases of LTI / Total Hours worked)

x 1,000,000

2.

Severity Rate for Loss Time

Injury

Severity rate for LTI is the number of days

away from work due to LTI per million hours
worked. Total hours worked is the actual
total hours of worked recorded for the
Permanent & Contract employees.

3.

Fatality Rate

Fatality rate is the number of fatality case for

that reporting year. Fatality is an
instantaneous work related event or
exposure leading to death within one year of
the even or exposure.

4.

Lost Time Property Damage

Incidence (LTPDI) Frequency
Rate

Is the number of cases of Lost Time

Property Damaged Incident or that reporting
year. LTPDI is an incident that may involve
or may not involve injury but affect
production loss of more than 2 days or
damage of property of more than RM10,000.

5.

Severity Rate for Hearing

Impairment

Is express as the percentage of employees

suffering from hearing impairment as per
examined by competent medical provider for
that reporting year.

(Total number of employees suffering

hearing impairment / Total number of
employees) X 100%

6.

Number of Reported Accidents

Number of reported accidents involving

persons other than employee e.g. Sub-

28

Nos.

Key Performance Indicators

in a year

Definition
Contractors, Visitor

Formula

7.

Number of Days Lost Caused

by Accident

Number of days lost caused by accident only to direct employee (Power Plant Premises
only).

8.

Lost Time Injury

Refers to number of reported accident that

resulted injury to the direct employee and
sub-contractor at the power plant premises
per million Man-hours worked in a year

(Number of Reported Accidents in a year /

Number of Man-hours Worked in a year) X
1,000000

9.

Injury Severity Rate

Refers to number of days lost of the

employee due to accident occurred at the
power plant premises per million Man-hours
worked in a year.

(Number of Days Lost Caused by Accident /

Number of Man-hours Worked in a year) X
1,000000

10.

Time Lost Due to Accidents or

Injuries (LTI)

Measures time lost due to accidents and

injuries at work (commonly known as LTIs).
Can be an input to the analysis of an
organisation`s health and safety program.
Some organisations use high publicity of
these figures as an awareness strategy to
improve individual care in the workplace.

Total number of days lost due to injury per

year / total hours worked per year

11.

Total Injury Rates - Recordable

This measure, used by the US Operational

Health and Safety, measures those injuries
that must be recorded in an organisation`s
injury log and generally require medical
treatment beyond first aid. Includes injuries
with no time lost from work and those
resulting in lost time.

(Total injuries / Total hours worked) x

200,000

29

Customer Perspective:

Customer focus, orientation, and satisfaction are key components

Customer will find other suppliers if they are not satisfied or their
requirements are not being met

Poor customer satisfaction is a leading indicator of future financial decline.

Even if the current financial picture is good

Developing metrics in this area requires that customer profiles be done as

well as the processes that provide the products and services to them

30

KPI Samples : Customer Perspective

Nos.

Key Performance Indicators

Definition

Formula

1.

Average Order Value

This indicates the average order value

expressed per order.

(Total Revenue Current Year / Number of

Orders Received) X 1,000

2.

Customer Growth

This indicates how the business is

expending, in terms of its customer base.

(Number of New Customers / Number of

Customers) X 100%

3.

Complaints per Customer

This indicates the average number of

complaints per customer, independent of the
number of orders.

Number of Recorded Customer Complaints

Received / Number of Customers

4.

Complaints per Order

This indicates customer satisfaction with the

products and services supplied. The trend
for this ratio can be useful to measure
improvements in performance, and is also a
method of assessing lost business.

(Number of Recorded Customer Complaints

Received / Number of Orders Received) X
100%

5.

Delivery Schedule Deviation

This indicates how well a business is

meeting its commitment for delivery
promises. A lower figure shows better
performance.

(Number of Customer Orders which were

not delivered when Promised / Number of
Orders Received) X 100%

6.

Percentage of Orders Rejected

During Warranty Period

This indicates the percentage of orders that

have failed during the warranty period. The
lower the percentage, in general, the better,
as it means that more orders are supplied
where the product or service was of
satisfactory quality.

(Number of Orders Rejected by the

Customer During the Specified Warranty
Period / Number of Orders Received) X 100

7.

Delivery - On-time

Measures on-time delivery, a key factor in

Number of orders (for products or services)

31

Nos.

Key Performance Indicators

Definition
satisfying customers.

Formula
delivered on time as a % of total number of
orders delivered

8.

Customer - Retention

This measure provides an indication of

No. of regular customers over the past year
customer retention/loyalty or the value of this / number of customers in total
loyalty.

9.

Compliments-to-Complaints
Ratio

This measure is a critical measure of an

organisation`s performance as seen by its
customers. It is widely used to determine the
average service level of service
organisations.

Number of compliments received for every

complaints received

10.

Customer complaint - Time to

resolve

A key contributor to customer satisfaction,

this measure indicates the average time it
takes to resolve a complaint to the
customer`s satisfaction.

Average time taken to resolve customer

complaints to the customer`s satisfaction

11.

Customer - Complaint
response time

This measure provides data on the length of Average time to respond to customer
time it takes to respond to a customer
complaints
complaint. It does not indicate whether or not
the complaint was dealt with satisfactorily
but a quick initial response time can be a key
contributor to the satisfactory conclusion of a
customer complaint process by helping to
contain or prevent further unnecessary build
up of the situation on the part of the
customer (who then knows the situation is
in-hand).

12.

Customers New

This measure can provide an input to the

analysis of sales force performance or new

Number of new customers over the past

year as a % of no. of customers in total

32

Nos.

Key Performance Indicators

Definition
product success or new marketing strategy
or other appropriate areas.

Formula

13.

Customer complaints Resolution

Measures whether customer complaints are % customer complaints successfully

resolved to the satisfaction of the customers` resolved
needs.

14.

Customer- order lead-time

A measure of the amount of time required to

fill a customers order, from receipt to final
shipping or delivery.

Time elapsed from the receipt of an order

until the finished product is either shipped
or delivered to the customer

15.

Customer retention cost

This is a measure of the cost involved in

retaining customers.

Average cost of retaining existing customer

16.

Customer acquisition cost

This is a measure of the cost involved in

attracting or retaining customers.

Average cost of attracting new customers

17.

Call-Centre (or customer

service call) response time
performance

A measure of the employees success in

meeting targets for response times. This
measure can influence customer satisfaction
and to inquiry conversion.

% of calls answered within response target

level (no. rings or time in seconds)

33

Financial Perspective :

Based on financial data that is timely and accurate funding data

Implementation of a corporate financial database is key

Centralization and processing, accessibility, and automation of financial

data is key

Special attention must be paid to any possible skewing of the Financial

Perspective

Risk Assessment and Cost/Benefit Analysis should be included in this

perspective

34

KPI Samples : Financial Perspective

Nos.

Key Performance Indicators

Definition

Formula

1.

Net Profit Margin

This indicates the amount of net profit per

RM1 of turnover a business has earned.
That is, after taking account of the cost of
sales, administration costs, the selling and
distributions costs and all other costs.

(Profit Before Tax Current Year / Total

Revenue Current Year) X 100

2.

Return on Capital Employed

This indicates the percentage return

generated on the total capital invested in the
business, a good overall measure of
management effectiveness.

(Profit Before Tax Current Year / (LongTerm Loans + Other Long-Term Liabilities +
Shareholders' Fund Current Year)) X 100

3.

Return on Net Asset

This indicates the return being generated on

equity shareholders investment in your
business, taking into consideration all costs,
including interest and other financial costs.

(Profit Before Tax Current Year / (Total

Assets - Total Creditors - Other Current
Liabilities)) X 100

4.

Return on Total Asset

This indicates the business's ability to

generate a return on the total assets (fixed
or current) held within your business. This
shows operating efficiency.

(Profit Before Tax Current Year / Total

Assets) X 100

5.

Fixed Costs as a Percentage of This indicates operational gearing.

Sales
Businesses, which have high fixed costs
relative to variable costs, are said to have
high operational gearing. Operational
gearing matters because it highlights
potential volatility in future profits, when
activity levels change. Businesses with high

((Total Revenue Current Year - Cost of

Sales Current Year - Operating Profit
Current Year) / Total Revenue Current
Year) X 100

35

Nos.

Key Performance Indicators

Definition
operational gearing will have profits which
rise disproportionately from a given increase
in turnover, and conversely, which fall
disproportionately when turnover declines.

Formula

6.

Staff Costs as a Percentage of

Sales

This indicates the amount that is spent on

salaries as a proportion of turnover.

(Staff Costs Current Year / Total Revenue

Current Year) X 100

7.

Value Added as a Percentage

of Sale

This indicates the business efficiency to add

value to bought-in materials and services. It
is the difference between the cost of bought
in materials and services and sale price.

(Total Revenue Current Year

Depreciation / Total Revenue Current Year)
X 100

8.

Current Ratio

This indicates the business's ability to pay

back its short-term liabilities (debt and
payables) with its short-term assets (cash
inventory, receivables).

(Total Debtors + Stock + Cash in Bank and

in Hand + Other Current Assets) / (Total
Creditors + Other Current Liabilities +
Short-Term Loans)

9.

Acid Test

This indicates the businesss ability to pay

back its short-term liabilities (debt and
payables) with its short-term assets (cash,
inventory, receivables). Stock is taken away
from current assets as it can take too long to
get rid of.

(Total Debtors + Cash in Bank and in Hand

+ Other Current Assets) / (Total Creditors +
Other Current Liabilities + Short-Term
Loans)

10.

Creditor Days

This indicates how many days on average it

takes a business to pay its bills. It measures
the reliance on creditors, supplier
relationships and may be a measure of
solvency.

(Total Creditors / Cost of Bought-in

Materials and Services) x 365

11.

Debtor Days

This indicates how many days on average it

(Total Debtors / Total Revenue Current

36

Nos.

Key Performance Indicators

Definition
takes a business to get paid for what it sells.
It measures how the business manages its
debtors, i.e. credit and bad debt control, and
could impact upon customer relationships.

Formula
Year) X 365

12.

Working Capital Turnover

This indicates how effectively working capital

is being used in terms of the turnover it can
help to generate. The higher the figure the
better.

Total Revenue Current Year / (Total

Debtors + Stock + Cash in Bank and in
Hand) - (Total Creditors + Other Current
Liabilities)

13.

Cash in Bank to Turnover

This indicates the businesss accessibility of

cash. However, companies that hold too
much cash may not be investing their funds
to the best advantage of their business.

(Cash in Bank and in Hand /Total Revenue

Current Year ) X 100/

14.

Interest Cover

This indicates the safety margin that the

business has in terms of being able to meet
its interest obligations. That is, a high
interest cover means that the business is
easily able to meet its interest obligations
from profits.

Profit Before Tax Current Year / Interest

Payable Current Year

15.

Gross Gearing

This indicates the extent to which a business ((Short-Term Loans + Long-Term Loans) /
uses debt versus equity to finance its
Shareholders' Fund Current Year) X 100
working capital and is a measure of business
risk.

16.

Net Profit Growth

This indicates the changes to the profit

((Profit Before Tax Current Year - Profit
margin last year compared to the previousBefore Tax Previous Year) / Profit Before
to-last year. It measures how well costs have Tax Previous Year) X 100
been controlled when compared to the
growth of-pre-tax profit.

37

Nos.

Key Performance Indicators

Definition

Formula

17.

Earning per Share Holder

This measure, very popular in the 1980`s,

tracks financial performance per share. A
measure commonly use to measure an
organisations past performance and in
projecting future earnings potential.
Formulas for this can vary dependent on
circumstance and choice.

Change over period of (Profit after tax (not

extraordinary items), minority interests and
preferred dividend) / Total no. of ordinary
shares issued.

18.

Asset turnover

A measure that can indicate the flexibility of

an organisation. A high level of capital
employed in comparison to sales is likely to
reduce an organisation`s ability to diversify
and attempt new ventures. At the same time
if high start-up costs are involved it may
discourage potential market entrants.

Sales as a % of capital employed

19.

Sales Fixed Assets

This measures the amount of fixed assets

Total sales as a % of current fixed assets
that are required to produce a certain level of value
sales. This an indicator of the efficiency with
which the organisation uses its fixed assets.

20.

Breakeven time (BET)

(payback time) - New product /
service

A measure of the time it takes for sales

turnover from a new product or service to
equal the cost of bringing that new product
or service to market, as measured from the
beginning of the project.

Time elapsed when cumulative sales

turnover from the new product or service
equals the cost of bringing it to market

21.

Receivables turnover

This measure provides an input to the

analysis of the liquidity of an organisation`s
receivables. This can be used in designing
strategy relating to the balance between

Annual sales through credit / Average trade

account receivable

38

Nos.

Key Performance Indicators

Definition
retaining slow paying customers and
avoiding cash-flow congestion.

Formula

39

Conclusion

The KPI Process provides specific performance feedback on key behaviour

expectations as well as our ability to meet performance goals that we have set.
KPI's are used to monitor both financial and non financial activities, processes
and financial results. In addition, KPI's provide a standardised way to clearly
communicate to the organisation what is important and where the focus should
be on a regular basis. This could be daily, weekly or monthly performance
monitoring depending on the need. Another important contribution that KPI's
make is to provide a tracking system that can move an organisation toward
continuous improvement.

Managers at all levels in an organisation can track key performance indicators to

assess how well their groups are meeting their business objectives, whether
performance is improving or declining, and how their groups performance
compares with that of other units or groups within the company and with rival
organisations.

40

References
Developing and Using Balanced Scorecard Performance Systems Howard
Rolm, Perform, 2002
Building and Implementing a Balanced Scorecard Howard Rolm, US
Foundation for Performance Management
How to Measure Performance: A Handbook of Techniques and Tools
Performance Based Management, US Dept of Energy
Keeping Score Mark Graham Brown, Quality Resources
Performance Drivers Niles-Goram Olve, Jan Roy, and Mangus Wetter, Wiley
The Balanced Scorecard Robert Kaplan and David Norton, Harvard Business
School Press
The Strategy Focused Organisation - Robert Kaplan and David Norton, Harvard
Business School Press
ITIL Service Delivery and Service Support Guides (ITIL is a registered trade
mark of OGC)
IT Service Management A Practical Operational Approach Guide A
Compilation of Best Practices for the IT Service Provider, Rick Leopoldi

41