CSF and KPI

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)