CSF and KPI

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Source: http://www.12manage.com/methods_rockart_csfs_kpis.html

title
CSF and KPI
author
Bernard Szlachta (NobleProg Ltd)

CFS and KPI ⌘

  • Critical Success Factor
  • Key Performance Indicator
  • Can be used for defining and measuring business objectives

History ⌘

  • The concept of "success factors" was developed by D. Ronald Daniel of McKinsey and Company in the 60s
  • Refined and popularized by Jack F. Rockart of the Sloan School of Management in late 80s
  • Kaplan/Norton Balanced Scorecard method was based on this idea.

CSF ⌘

  • some feature of the internal or external environment of an organization
  • has a major influence on achieving the organization's aims
  • "critical" originally referred to a catastrophic failure (if the linked goals were not realized)
  • TODO: put some examples here

Rockart's basic types of CSF ⌘

  1. Industry
  2. Strategy
  3. Environmental
  4. Temporal

CSF and levels of organizations ⌘

  • Business Strategy and Strategic Goals (original idea)

Later extanded to almost any level, e.g.

  • Organization's departments
  • Individuals

KPI ⌘

  • quantifiable gauge that an organization uses to measure its performance in terms of meeting its CSFs
  • A KPI can be financial or non-financial
  • There can be more than 1 KPI per CSF

Levels of the aims of any organization ⌘

  1. Vision/Mission
    • basic reason why the organization was established and exists
    • "Oxfam was established to relieve poverty and suffering in the world"
  2. Strategic Goals
    • what should be the focus of the organization so that it can achieve its Vision
    • high level expressions, big ideas
    • can be identified by SWOT, PEST, Core Competence, Value Chain, etc...
    • A Goal of Oxfam is to seek to provide secure livelihoods for farmers in order to relieve poverty.
  3. Objectives
    • Goals are broken down into more concrete objectives
    • SMART
    • "Tactical plans can be devised (budgets), responsibilities assigned and measurements made"
    • Strategic Goals are analyzed to determine the Factors that affect their achievement
    • These Factors are the CSFs.
    • CSF + KPI + Target = Objective
    • Example: funding, training and education programs create secure livelihoods. Therefore funding, training and education are CSFs for this Goal.

HOW MANY CSFs AND KPIs? ⌘

  • Vision: 3-5 strategic goals for 3-5 year
  • Balanced Scorecard technique suggests 3-5 goals per focus area
  • Each Goal should be broken down into 3-5 Factors that affect the Goal
  • This gives between 9 and 25 Factors in the organization


  • For each CSF there must be at least one Measurement (KPI) and a Target for the current or forthcoming budget exercise.
  • Objective (tactical aim) is composed of a CSF plus a KPI plus a Target.

Conflicts of Objectives ⌘

  • Cost cutting vs customer satisfaction
  • There should be a balance between the objectives set for each CSF/KPI combination so the business plan for the organization as a whole is viable
  • This principle is called Satisficing (Herbert Simon) as opposed to Optimizing.

CSF/KPI and IT ⌘

  • Often implemented through Business Intelligence software
  • May use some form of scorecard, dashboard, traffic light system, etc..
  • Organization need to decide:
    • How often and How the performance will be measured
    • assignment of organizational responsibilities that enable the Objectives to be actively managed

Pitfalls ⌘

  • Targets are good servants but very bad masters, eg:
    • "A Transportation Company didn't pick up passengers on a certain route, because then the buses would come too late!"

STEPS IN THE CSFS AND KPIS PROCESS ⌘

  1. Establish the Vision
  2. Determine Strategic Goals
  3. Analyze each Goal - what Factors (CSF) influence the Goal
  4. Assign at least 1 Measure for each Factor (KPI)
  5. Assign a Target for the current budget exercise

DISADVANTAGES ⌘

  • CSF/KPI must be reviewed frequently
  • The emphasis on measurement can result in forgetting or undervaluing major 'soft' elements (not measurable)