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Michael Taplin
Michael Taplin is the home of The KPI Bible and offers the lowdown on KPI modeling

Corporate Dynamics Ltd
Principal Consultant


Two alternative views of performance.Can a KPI model reveal both?

Posted about 10 years ago

The most common debate when a group is building a KPI Model is about which view of the organization is paramount? It usually boils down to an argument about he top-down model or the bottom-up model.

The top-down proponents argue that they need a helicopter view with the ability to drill down into the detail when a problem is revealed. The bottom-up proponents argue that performance happens at the operational level, and the people at the coal-face need real KPIs to manage their own performance.

The problem is that both are right. Inevitably the modeler is faced with a problem. How can both perspectives be served in the same model?

An Example: The project-based business

When a business is organized as a number of functional or discipline groups running a range of projects for customers, there is a common problem.

Project managers see their role as to run their projects perfectly. They really believe that if every project is delivered on time and within budget, the whole business must be OK. Top management knows that every project can run perfectly and the business can still be in trouble. The business is more than the sum of the projects.

The reason is a vital KPI for project businesses – Labor Utilization.

To achieve budget or target levels of financial performance Labor Utilization must be kept in a narrow range. Labor Hours Charged as a % of Labor Hours Paid must be kept above break-even levels, but not too high lest the overload leads to system breakdown. The % range varies from industry to industry but it does not vary much within an industry group.

So why does this create a problem?

The project manager wants to optimize the cost of the labor resources from each of the functions applied to a single project.

The manager of each function (discipline) has to optimize the Labor Utilization for the function while contributing resources to multiple projects.

The chief executive has to optimize Labor Utilization for the whole organization.

The tension between these is a fundamental conflict of objectives.

Can the KPI model provide both views?

The answer is Yes, but it is difficult to get them both on the same page.

The solution

Think about the KPI Model as a way of providing three different slices of the Labor Utilization data:
• Top management needs are met at the highest level by the first page of the model that analyses the drivers of business return.
• Functional (discipline) managers are interested in the data for their function and their comparative performance. This is the next page.
• Project Managers are interested the performance of individual projects. This is the next page.

The links to the top page will contain the same numbers because they are taken from the same sources. If they are not the same you have a leak in your system.

This is a bit like a Statement of Financial Position; it must balance.

You can meet the needs of three different audiences each needing a different slice of the same data. The same challenges occur in product and service businesses and frequently in marketing businesses. There are decisions to be made.

This is potentially a complex topic so if you need more guidance you can get it at>Themes>KPI Models in the form of a whitepaper with comprehensive diagrams.

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