Key Performance Indicators
BI often uses Key performance indicators (KPI's) to assess the
present state of business and to prescribe a course of action. More and more
organizations have started to make more data available more promptly. In the
past, data only became available after a month or two, which did not help
managers to adjust activities in time to hit London Stock Exchange targets.
Recently, banks have tried to make data available at shorter intervals and have
The KPI methodology was further expanded with the Chief
Performance Officer methodology which incorporated KPI's and root cause analysis
into a single methodology.
For example, for businesses which have higher
operational/credit risk loading (for example, credit cards and "wealth
management"), a large multi-national bank makes KPI-related data available
weekly, and sometimes offers a daily analysis of numbers. This means data
usually becomes available within 24 hours, necessitating automation and the use
of IT systems.
Designing and implementing a Business Intelligence
When implementing a BI programme one might like to pose a
number of questions and take a number of resultant decisions, such as:
Goal Alignment queries:
The first step determines the short and medium-term purposes of the
programme. What strategic goal(s) of the organisation will the programme
address? What organisational mission/vision does it relate to? A crafted
hypothesis needs to detail how this initiative will eventually improve
results / performance (i.e. a strategy map).
Current information-gathering competency needs assessing. Does the
organisation have the capability of monitoring important sources of
information? What data does the organisation collect and how does it store
that data? What are the statistical parameters of this data, e.g. how much
random variation does it contain? Does the organization measure this?
Cost and risk queries:
The financial consequences of a new BI initiative should be estimated. It is
necessary to assess the cost of the present operations and the increase in
costs associated with the BI initiative? What is the risk that the
initiative will fail? This risk assessment should be converted into a
financial metric and included in the planning.
Customer and Stakeholder queries:
Determine who will benefit from the initiative and who will pay. Who has a
stake in the current procedure? What kinds of customers/stakeholders will
benefit directly from this initiative? Who will benefit indirectly? What are
the quantitative / qualitative benefits? Is the specified initiative the
best way to increase satisfaction for all kinds of customers, or is there a
better way? How will customers' benefits be monitored? What about
employees,... shareholders,... distribution channel members?
These information requirements must be operationalised into clearly defined
metrics. One must decide what metrics to use for each piece of information
being gathered. Are these the best metrics? How do we know that? How many
metrics need to be tracked? If this is a large number (it usually is), what
kind of system can be used to track them? Are the metrics standardised, so
they can be benchmarked against performance in other organisations? What are
the industry standard metrics available?
queries: One should establish a methodology or a procedure to
determine the best (or acceptable) way of measuring the required metrics.
What methods will be used, and how frequently will the organization collect
data? Do industry standards exist for this? Is this the best way to do the
measurements? How do we know that?
Someone should monitor the BI programme to ensure that objectives are being
met. Adjustments in the programme may be necessary. The programme should be
tested for accuracy, reliability, and validity. How can one demonstrate that
the BI initiative (rather than other factors) contributed to a change in
results? How much of the change was probably random?