Most often, the items that appear in the dashboards are elements that both customers and project managers track. These items are referred to as key performance indicators. According to Eckerson:1
A KPI is a metric measuring how well the organization or an individual performs an operational, tactical or strategic activity that is critical for the current and future success of the organization.
Although Eckerson’s comment is more appropriate for business- oriented rather than project-oriented metrics, the application to a project environment still exists. KPIs are high-level snapshots of how a project is progressing toward predefined targets. Some people confuse a KPI with a leading indicator. A leading indicator is actually a KPI that measures how the work you are doing now will affect the future. KPIs can be treated as indicators but not necessarily leading indicators.
1. Wayne W. Eckerson, Performance Dashboards: Measuring, Monitoring and Managing Your Business, Hoboken, NJ: John Wiley and Sons Publishers, 2006, pp. 294.
SITUATION: By the end of the second month of a 12- month project, the cost variance indicated that the project was over budget by $40,000. The client then believed that if this continued until the end of the project, the final result would be a cost overrun of $240,000. The client became irate and called for a clear explanation as to why we were heading for a
$240,000 cost overrun.
While some metrics may appear to be leading indicators, care must be taken as to how they are interpreted. The misinterpretation of a metric or the mistaken belief that a metric is a leading indicator can lead to faulty conclusions.
KPIs are critical components of all earned value measurement systems. Terms such as cost variance, schedule variance, schedule perfor- mance index, cost performance index, and time/
cost at completion are actually KPIs if used cor- rectly but not always referred to as such. The need for these KPIs is simple:
What gets measured gets done! If the goal of a performance measurement system is to improve efficiency and effectiveness, then the KPI must reflect controllable factors. There is no point in measuring an activity if the users cannot change the outcome.
For more than four decades, the only KPI we looked at were time and cost or derivatives of time and cost. Today, we realize that true proj- ect status cannot be measured from just time and cost alone. Therefore, the need for additional KPIs has grown.
Project managers must explain to the stakeholders the differences between metrics and KPIs and why only the KPIs should be reported on dashboards. As an example, metrics focus on the completion of work pack- ages, achievement of milestones, and accomplishment of performance objectives. KPIs focus on future outcomes, and this is the information stakeholders need for decision making. Neither metrics nor KPIs can truly predict that the project will be successful, but KPIs provide more accurate information on what might happen in the future if the existing trends con- tinue. Both metrics and KPIs provide useful information, but neither can tell you what action to take or whether a distressed project can be recovered.
KPIs have been used in a variety of industries such as:
◾ Construction
◾ Maintenance
◾ Risk management
◾ Safety
◾ Quality
◾ Sales
TIP The project manager must explain to the dashboard users what is and is not a leading indi- cator, and how the metrics should be interpreted.
TIP Although KPIs reflect controllable factors, not all unfavorable situations can be completely corrected. Stakeholders must be made aware of this fact.
100 KEY PERFORMANCE INDICATORS
◾ Marketing
◾ IT
◾ Supply chain management
◾ Nonprofit organizations
Once the stakeholders understand the need for correct KPIs, other questions must be dis- cussed, including:
◾ How many KPIs are needed?
◾ How often should they be measured?
◾ What should be measured?
◾ How complex will the KPI become?
◾ Who will be accountable for the KPI (i.e., the KPI’s owner)?
◾ Will the KPI serve as a benchmark?
We stated previously that what gets measured gets done, and that it is through measurement that a true understanding of the information is obtained. If the goal of a metric measurement system is to improve efficiency and effectiveness, then the KPI must reflect controllable factors. There is no point in measur- ing an activity or a KPI if the users cannot change the outcome. Such KPIs would not be acceptable to stakeholders.
Working with stakeholders is challenging. There are complexities that must be overcome such as:
◾ Getting stakeholders to agree on the KPIs maybe difficult even if the stakeholders understand KPIs and possess a reasonable maturity level in project management.
◾ Before agreeing to provide KPI data to a stakeholder, we must determine if the KPI data is in the system or needs to be collected.
◾ We must determine the cost, complexity, and timing for obtaining the data.
◾ We may have to consider the risks of information system changes and/
or obsolescence in some of the organizational process assets that can impact the KPI data collection over the life of the project.
◾ We must consider that some KPIs may not appear until well into the project and that, over time, the stakeholders may request that additional KPIs be included in the system.
There are two other critical issues that project managers need to consider. First, if the project manager maintains multiple information sys- tems, a measurement can appear and be treated as a KPI in one informa- tion system but be recognized as a simple metric in another. As an example, maintaining the project’s profit margins might be a simple metric in the TIP KPI measurement techniques must be
explained to the stakeholders to get their buy-in and approval.
TIP KPIs in one industry may not be transferable to another industry. And even in the same industry, KPIs may be used differently in each company.
project manager’s information system but a KPI in the corporate information system. With regard to stakeholders, this metric would not be provided to them.
The second issue involves the contractors you hire. If you hire consul- tants and contractors to assist you in the management of the project, they may bring with them their own project management methodology, metrics and KPIs. You must make sure that the information they report to you is compatible with your business needs, especially if this information will be presented to the stakeholders as well. The contractor’s definition of a KPI may not be the same as your definition.