An example of designing a KPI indicator system. Using KPI methodology in projects. Who can help develop KPIs for managers

Hello! In this article we will talk about the KPI system.

Today you will learn:

What is KPI.
How to calculate this indicator.
How to implement a KPI system in an enterprise.
About the pros and cons of this system.

What is KPI in simple words

KPI - this is a coefficient that determines the efficiency of a particular enterprise: how well it functions and whether it achieves its goals.

The decoding of this abbreviation is as follows - Key Performance Indicators, which is usually translated into Russian as “key performance indicators”.

If translated literally, the word “key” means “key”, “significant”, “indicators” - “indicators”, “indicators”, but with the word “performance” difficulties arise in translation, since here it is difficult to interpret unambiguously. There is a standard that gives the most correct translation of this word, dividing it into two terms: efficiency and effectiveness. Efficiency shows how the funds spent and the results achieved compare, and effectiveness shows the extent to which the company managed to achieve the result that was intended.

Therefore, KPI is more correctly translated as “key performance indicator.” In simple terms, for dummies, so to speak, you can see that this system helps you figure out what measures need to be taken to improve efficiency. Efficiency covers all actions performed over a specified period of time, as well as the benefits received by the enterprise from each individual employee.

KPI indicators are as follows:

Performance KPIs- shows the ratio of the spent monetary and time resources with the achieved result;
Cost KPI- shows how many resources are used;
KPI result- illustrates the result obtained during the execution of tasks.

Because this system is not easy to implement, you should adhere to certain rules and principles that can become indispensable assistants when switching to KPIs:

The 10/80/10 rule. It states that a company must define 10 key performance indicators, 80 performance indicators, and 10 performance indicators. It is not recommended to use many more KPI indicators, because this risks overloading managers with unnecessary unnecessary work, and managers will certainly be preoccupied with finding out the reasons for non-fulfillment of indicators that have little impact on performance in general.
Alignment of performance indicators and strategic plan. Performance indicators have no meaning unless they are related to the current Critical Success Factors (CSFs) integrated into the Balanced Scorecard (BSS), and.
Manageability and controllability. Each division of the company responsible for its indicator must be provided with resources to manage it. The result must be controlled.
Integrating performance measurement, reporting and performance improvement processes. It is necessary to introduce a process for evaluating performance and reporting that will push employees to take the specific actions required. For this purpose, reporting meetings should be held to consider the issue being resolved.
Partnership. To successfully increase productivity, it is worth ensuring partnerships between all employees involved. Therefore, the way to implement the new system must be developed together. This will allow everyone to understand what the advantages of innovation are, and also to be convinced of the need for change.
Shifting efforts to the main directions. To increase productivity, it is necessary to expand the powers of specialists: help in, offer to develop your own KPIs, provide training.

How to calculate KPI

Paragraph 1. To calculate KPI, you need to select three to five performance indicators that will be the specialist’s assessment criteria. For example, for an Internet marketer they could be as follows:

The number of site visitors attracted by a specialist.
A figure that shows how many purchases were made by customers who had previously contacted the company.
The number of commendable recommendations and customer responses on social networks or on the organization’s website after purchasing a product or service.

new customers - 0.5;
customers who made a repeat order - 0.25;
positive recommendations - 0.25.

Point 3. Now you need to analyze the data on all selected indicators for the last six months and make a plan:

KPI	Initial value (monthly averageindicators)	Planned value
Growth of new customers	160	Increase by 20%, or 192 new customers
Share of customers who made a repeat purchase	30	Increase by 20%, or 36 repeat purchases
Percentage of customers who wrote a positive response or recommendation	35	Increase by 20%, or 42 reviews

Point 4. The next stage is the calculation of KPI indicators in Excel. It is necessary to use the formula for calculating KPI: KPI index = KPI weight*Fact/Goal.

Key indicators (KPI weight)	Target	Fact	KPI index
KPI 1 (0.5)	20%	22%	0,550
KPI 2 (0.25)	20%	17%	0,212
KPI 3 (0.25)	20%	30%	0,375
Success rate			1,137
113,70%

Here, the goal is the indicator that the employee must achieve according to the plan, and the fact is what he has achieved in reality. The final figure is 113.70%, this is a good result, however, if you look at the table in more detail, you can see that the marketer did not fully fulfill the planned standards.

Point 5. We calculate wages. We will rely on the fact that the marketer’s total earnings are $800, of which the fixed part (salary) is $560, and the variable part (bonus) is $240. For a 100% index, the employee is entitled to a salary and a full bonus, but due to the fact that the plan is exceeded, the marketer will receive additional bonuses in the amount of 13.7% of the bonus, that is, $32.88. As a result, the employee’s salary will be $560+$240+$32.88=$832.88.

But when an employee does not fulfill the plan, and his performance indicator is below 99%, the bonus amount is proportionally reduced.

With the help of such calculations and drawing up a table, you can see the problems and difficulties that an Internet marketer faces.

Low performance may be due to the fact that the plan was drawn up incorrectly or the loyalty strategy itself is incorrect. The problem area needs to be monitored, and if things do not improve over time, then the right way out of the situation is to change the performance indicators.

Thanks to this approach, an understanding of the operating principle of KPIs is formed. Based on goals, the calculation can be supplemented with new values. This could be a system of fines, the number of solved and unsolved problems, and much more. For example, if less than 70% of the work according to plan is completed, the employee will not receive a bonus at all.

There is also an alternative way to calculate wages relative to the percentage of plan completion:

KPI index	Premium coefficient
Below 70%	0
70 — 80%	0,6
80 — 89%	0,7
90 — 95%	0,8
96 — 98%	0,9
99 — 101%	1
102 — 105%	1,3
106 — 109%	1,4
More than 110%	1,5

KPIs in practice

KPI performance indicator is used by almost all companies that engage in direct sales. Let's look at some examples for a sales manager. Having adopted the approved key indicators, he will see a clear picture of his activities: it will become clear to him how many goods need to be sold in order to reach a certain income, which ones.

For an insurance consultant who is new to the profession, the optimal efficiency ratio would be 1/10: to sell one insurance policy, you need to meet with 10 potential buyers.

There is also a KPI result, for example, “the number of new clients is not less than n”, “sales volume is not less than n”, etc. These indicators are personal, and it is better when their number is less than 5, and most importantly, they should be easily measurable and clearly formulated.

In addition to motivating employees, company managers use KPIs as a tool for analyzing the work of their subordinates.

This system allows you to clearly see gaps in activity and at what stage they arose. For example, the boss monitors the manager’s client base and how many calls and meetings the employee makes. If these indicators are met to a sufficient extent, but there are few sales, we can conclude that the employee lacks certain knowledge, skills or personal qualities to perform successfully.

KPI and enterprise planning

KPI indicators can be used in planning and monitoring activities. After the work has been done, actual indicators are measured, and if they seriously deviate from the planned ones and not for the better, then further activities are analyzed and adjusted. Since all indicators are “dictated” by the real process, and not invented independently, such planning will contribute to the achievement of the necessary goals of the organization.

How to motivate staff to achieve KPIs

Thanks to the use of the KPI system, when paying wages, planned and actual indicators are recorded. This gives the manager a clear understanding of how to motivate an employee and for what. At the same time, the employee also clearly sees the pros and cons of his work and is aware of what actions can bring him reward and what penalties are due.

For example, an insurance consultant sold more insurance policies than planned and expanded his client base with many new clients. Thus, he exceeded the plan and, in addition to his salary, will receive a bonus in the form of a bonus. On the other hand, if the same manager sold much less policies than planned, he may completely lose his bonus and receive a “bare” salary, because his personal performance will be low.

However, you can motivate employees not only with money.

For meeting targets, you can be rewarded with interesting training paid for by the company, unscheduled days off, gifts and other “carrots” that will inspire the employee just as much as money. But in this case, the employee’s salary is always fixed, and according to the KPI system, points are calculated that the employee can exchange for the desired bonuses.

To create KPIs for employees, you need to focus on a common goal for all employees and strong motivation. Working in a team of interested specialists, like clockwork, can quickly lead a company to achieve all its goals.

In what cases is KPI not needed?

In a young company that has just begun its existence, it is not advisable to introduce a KPI system. The management system here has not yet been formed, and successful development is due to the work of the general director. Most often, he also performs the functions of finance and personnel specialists.

And also, you should not implement KPIs in those departments that, because of this, may negatively affect other departments of the company. For example, an IT service, whose representatives must solve the problems assigned to them (repair of office equipment) as quickly as possible. After all, it happens that one of the employees’ computer breaks down and work stops, and the entire department depends on the work of this employee.

If the salary of an IT specialist is calculated according to the KPI system, then he will not go to work right away. First, you need to submit a request to fix the breakdown. This application must be approved by a senior IT department specialist, after which the task is queued for implementation and awaits consideration.

As a result, a task that requires 5 minutes to complete takes much more time, during which time the work of the entire department, where one computer has broken down, does not move at all.

That is why it is useful to implement a KPI system wisely, otherwise it can do a lot of harm.

Errors when implementing KPIs

The most common mistake is introducing KPIs for statistics alone.

Ultimately, it turns out that the indicators of one division have no connection with the indicators of another.

For example, the supply department of one enterprise needed to reduce costs. Therefore, in order to receive raw materials at a discount, employees purchased them in large volumes, and also purchased defective goods. This led to overcrowding of warehouses, freezing of finances in raw materials, which blocked all the advantages.

Meanwhile, the production department had its own priority indicator - the load factor of production equipment. To use time efficiently, employees produced certain products in large quantities to save valuable minutes on machine conversions. But this inevitably affected the fulfillment of the sales plan by the commercial department, because there was no necessary assortment, and at a specific period of time the client could only purchase one type of product.

As a result, a situation has arisen where everyone pulls the blanket on themselves, and no one achieves the goal. The result was reduced to zero, and all the work was done in vain.

Another common mistake is focusing exclusively on material indicators that are the result: sales level, income, etc. However, only when key indicators are not financial, but proactive, can goals be achieved much more effectively.

For example, how many calls should a sales manager make, how many meetings should he hold, how many contracts should he conclude in order to achieve that same resulting KPI? It is on the basis of such non-financial factors that the employee motivation system should be built, and department heads should focus directly on financial ones.

And also a serious mistake would be a situation where the persons responsible for a particular indicator are not identified. For example, the incentive procedure does not imply bonus payments or their reduction by the manager for fulfillment or non-fulfillment of the plan. In this case, the boss cannot be responsible for the actions of his subordinates, because he has no opportunity to influence them.

Pros and cons of implementing a KPI system

Working according to the KPI system has many advantages:

It has been established that in companies with such a system, employees work 20-30% more efficiently.
Specialists will clearly understand which tasks are priority and how to complete them.
With a well-implemented system of indicators, monitoring the company’s activities is greatly facilitated, thanks to which problems are detected already at the stage of their occurrence and are resolved before they can cause harm.
When calculating wages, the principle of fairness applies: those who worked diligently receive more. This allows the organization to retain valuable talent.
The wage fund becomes a means of motivating staff, and not the main source of expenses.

The KPI system also has disadvantages. First of all, the disadvantage is that a lot of time and effort is spent on implementation, because all indicators need to be worked out in detail. Most likely, it will be necessary to retrain employees, explain to them information about changing working conditions and new tasks.

However, the main disadvantage is that the effectiveness is not always assessed correctly. This can be avoided if, at the stage of system development, the criteria by which the assessment will be carried out are flawlessly formed.

We are opening a new series on the topic of KPIs, started last year1. This time we will consider the main steps of implementing a KPI-based staff motivation system. Let’s focus not on the method as such and general approaches to functionality, but on key indicators that usually fall into the company’s top management chart. Mastering this material will require a certain amount of patience from the reader, because the presentation of general principles is always easier to perceive than an analysis of particulars.

Sustainability is progress without impatience.
Nassim Taleb

For top managers, like for all other employees of the company, there are general rules, and there are rules that apply only to a specific position.

How to direct an employee to

Typically, the general rules for motivating all managers (including top managers) include the following:

objective analysis and assessment of the position held - the complexity, area and degree of responsibility of the work performed;
the key functions and goals of the employee and their share of participation in achieving the goals of other employees are taken into account;
at least three and no more than five KPIs of employees are taken into account according to the main goals of the employee 2;
business processes in which employees participate and the degree of personnel involvement in the main business process are taken into account.

However, along with the general rules, there are also rules specific to each position, taking into account the individual responsibility of the top manager for the area of activity he heads (process, project) and goals.

Specific rules for the general director (GC) are usually established by the company's shareholders, since the CEO is the spokesman of their interests, the “translator” of strategic desires and intuitive expectations from the business into the language of operational management. Sometimes shareholders determine these specific rules for key top positions, for example, commercial director, financial director, production director.

Typically, shareholders indicate what they would like to see as the final result of the company’s activities, and it is in this regard that certain KPI parameters for top managers are named. Often this sounds very general, for example: “All top managers should participate not only in the profits, but also in the risks of the company” - translated into KPI language, these will most likely be at least two indicators: for total profit and for profitability of activities by division. The remaining indicators relate directly to the goal or functionality for which each top manager is responsible.

The CEO has it “easiest” because he is responsible for everything. The duty of the General Director is to ensure the effective functioning of the economic facility entrusted to him. This means that the projections of all goals and processes are reflected in his area of responsibility. Figuratively speaking, the CEO is responsible for everything he does himself and for what his top managers do.

If this is taken literally, the KPI diagram of the CEO will be voluminous and confusing, because it will have to reflect the KPIs of all his deputies, as well as his own indicators, since, despite the popular saying “don’t do anything yourself if you have a good deputy,” An active CEO has to do a lot himself.

To build a scheme of target 2 KPIs for the CEO, you can go one of two ways.

Method 1 (more correct, but also more complex) - building a Strategic Map for the General Director.

The strategic map includes all the goals of the Main Directorate (and usually these are all the goals of the top-level company), distributed across four main perspectives: development, processes, customers and finance 3. In this case, the goals are not arranged in any random order, but in a hierarchy, reflecting the connection (which goal must be achieved earlier in order to move to the next one) and the strength of the connection (the extent to which achieving the previous goal is a necessary and sufficient condition for achieving the next one). An example of a Strategic Map is shown at drawing.

The numbers next to the targets indicate their weight. The goal that includes the maximum number of connections from other goals has a weight of 1, and the remaining goals have a weight proportionally. In the presented figure, the most important, significant financial goal for the State Duma is “to increase the capitalization of the company.” It includes with an equal weight of 0.5 (equal weight is an assumption to simplify the example) two more goals: client “to have at least 70% of the market share in the regions of presence” and process “to provide the necessary resources for development.” The client goal includes three other goals from a process perspective. Their weight is divided proportionally with respect to the weight of 0.5. KPIs developed for each goal with the CS are reweighted in accordance with the weight of the goal, and only those KPIs that receive a weight of at least 0.1 are retained for the final calculation.

The result will be a kind of KPI table that fully takes into account all the nuances, but requires a really advanced enterprise accounting system in order to be able to calculate everything correctly. We will not give all table, since this is quite a voluminous material for example, we will limit ourselves to two goals with the CS and KPIs for them.

The sum of the KPIs does not equal one because for the example we did not use all the goals from the CEO's Strategy Map.

Prize/bonus = (BFKRP x A + BF KPI2 x B + ....) x D,

where BF is the maximum bonus fund according to the indicator. The share of each KPI in the overall budget is proportional to its weight;

A, B, ... etc. - performance indicators;

D is a stop factor that blocks the payment of a bonus if the minimum threshold values for each indicator are not reached (these may be different “thresholds” for different indicators or a single norm for the company, for example, 80% of the plan). Failure to reach the minimum threshold value adopted by the company for any of the indicators included in the calculation formula blocks (or significantly reduces) the bonus payment. That is, the value of coefficient D varies from 0 to 1.

This method is correct because it allows you to take into account the significance of both goals and KPIs, but it is usually difficult to implement, so it is used when the company does not have a clear understanding of the specific importance of the goals, i.e. it is difficult to prioritize their achievement “head-on” directly, and it is necessary to carefully monitor the connection and conditionality of some goals with others, so as not to miss anything in the final KPI scheme.

If the company clearly understands exactly what goals it is setting for the foreseeable period and in what sequence, then a simpler method can be used to create a KPI scheme for the CEO.

Method 2. Development of a KPI map “head-on”.

When implementing this method, all the goals of the general director are written out, which are indicated to him by the shareholders (most often these are the same profit and profitability), KPIs are determined for them, their weight is expertly assigned (which in total should be equal to 1) and the conditions under which the bonus is paid in full or reduced amount. The strategic map is not being built.

Let's assume that the CEO's goals, as outlined to him by shareholders, are measured by the following KPIs:

Receipt of cash (PDS).
Profit.
Repeated contracts with clients for the period (in kind or monetary terms).
Percentage of completing assigned tasks on time (upper level management).

Revenue per company employee (can be broken down by divisions or separately production personnel and office personnel). For each KPI, two threshold values are set: the first - if not achieved, the bonus is not paid for this particular KPI, and the second - if not achieved, the bonus is not paid at all, regardless of the percentage of completion of other KPIs. The formula for calculating the CEO's bonus/bonus thus includes five indicators, each with its own threshold value. Then the table for calculating the CEO's bonus may look like shown in table 2.

The calculation is made on the basis of those planned and actual values that are entered into the table from the company’s accounting system.

The main rules that should be taken into account when linking KPIs to the motivation system for top managers are the following:

1. Indicators must be supported by the accounting system.

2. The CEO's performance must include the performance of other top managers (in essence, the CEO's performance is the company's performance).

There should be no more than five or less than three indicators.

3. The weight of the indicator correlates with the share of the bonus fund allocated to the total bonus.

4. Each indicator has threshold values at which a bonus is not paid for this particular indicator.

A general stop factor of 4 is often introduced - the minimum value for achieving indicators, the failure of which for at least one of the indicators cancels or significantly reduces the total bonus, regardless of the percentage of achievement of other indicators.

Approval of the CEO's performance and bonus scheme is usually carried out by shareholders. The CEO bonus scheme serves as the basis for the future development of bonus schemes for the rest of the company's top managers.

We continue the series of materials devoted to the KPIs of top managers responsible for various functions within the company. The theoretical basis of the KPI method has been outlined in previous publications, so this article provides only minimal explanations to facilitate a quick understanding of the material. Please note that all the examples given cannot be used in practice without appropriate adaptation to the specific conditions of a real enterprise.

First, let's look at what a project is. According to the definition from the fundamental book on project management methodology PMBOK (PMI standard), a project is a temporary sequence of work leading to the creation of a unique product, service or result.

All enterprise activities consist of projects and processes. The difference between these two activities is the result. In a project the result is unique, in the process it is cyclical and reproducible. It is the uniqueness of the result that brings project managers into a special category of hired workers inhabiting the business space.

In fact, the main task of all project managers is to ensure the achievement of a unique result with limited resources (time, material and human). Solving such a problem involves both an entrepreneurial and a managerial aspect. Despite the poet’s well-known statement that “you can’t harness a horse and a trembling doe to one cart,” this is what project managers basically do - they bring together the irreducible, organize everything that is poorly organized, and with a firm hand lead projects to successful completion.

The position of a project manager implies the presence of many competencies, in particular, the ability to plan and be guided by a plan in one’s actions, along with the understanding that life is much richer than ideas about it, and the willingness to make the necessary changes. It is extremely necessary for him to be “friendly” with numbers in order to reduce all the vaguely formulated expectations of the customer from the implementation of the project to specific criteria and indicators taken into account. In addition, the project manager must be a subtle psychologist. A project team often requires the presence of completely different specialists, who sometimes find it difficult to understand each other. It is the manager who is faced with the task of not only selecting a team and motivating all its members to perform specific professional tasks, but also organizing such interaction between them as to move the project forward and not lead it to a dead end.

Good project managers are expensive and are extremely rarely available on the labor market. Even during times of crisis, they remained in demand and highly paid professionals.

As already noted, project activities, being part of the overall activities of the organization, are also an agent of change. The uniqueness of a successful result involves reconfiguring the entire management system in such a way as to make a successful “test” part of the repeatable, cyclical work of the enterprise, that is, to integrate the results of the project into the company’s processes.

Why, in general, does the enterprise carry out its activities? Even without taking into account such concepts as “mission”, “vision” and “strategy”, it is clear that the owner of any business wants his enterprise to bring him a good guaranteed income in the form of profit. The results of the activity must justify the efforts and resources expended by the business owner, as well as provide him with sufficient well-being so that he continues to want to invest them in his enterprise.

Thus, each manager is required not only to ensure that project activities are carried out until the result is achieved, but also to stay within the project plan and budget, despite the unpredictability of circumstances (separately included in the budget in the form of calculated risks) and other “resistance of the material.” In addition, projects can be different, not all of them involve the company receiving irreversible profits. For example, investment projects involve returns within a certain time after achieving the main result. However, the implementation of most projects in commercial organizations is aimed at making a profit. In this regard, the main objectives for which a project manager is usually responsible are:

The tasks facing the project manager lead to key indicators that measure the effectiveness of his activities.

Typically, the project manager’s calculation scheme includes the following KPIs:

profit;
the size of deviations from the project plan and budget;
the amount of overdue accounts receivable, if the manager was faced with the task of selling products created as a result of the project implementation

Profit KPI is often the so-called stop factor in the overall scheme. If it is not possible to achieve its planned value, this will lead to the absence or significant reduction of bonuses for achieving other KPIs.

The final bonus of the project manager is equal to the sum of bonuses for each of the KPIs. In this case, the bonus as a whole is awarded if a KPI is achieved, which is a stop factor (in this case, profit). If this KPI is not achieved, the bonus is not awarded, regardless of the achievement of other KPIs.

Bonus amount according to KPI Bi is defined as follows:

Bi = BF x Bi x min (KPIactual / KPIplan; 1) + VP, Where

BF– employee bonus fund;
Bi– the weight of the indicator in the employee’s scorecard;
KPIfact.– actual KPI value;
KPI plan.– planned KPI value;
VP– reward for over-fulfillment.

A KPI bonus is awarded if the percentage of KPI completion exceeds the threshold value (TV) and if the overall KPI is met.

The size of the bonus depends on the percentage of fulfillment of the established KPI and the weight of the KPI in the scorecard.

PMBOK – project management body of knowledge – is a regularly updated publication. Currently there is a fourth version, the translation of which into Russian can be found on the forum: microsoftproject.ru

Pushkin A.S., poem “Poltava”

This refers to commercial enterprises. In state companies and public organizations, the criteria for success are different. They are not discussed in this article to avoid lack of focus.

Typically, the expected return is measured through ROI - return on investment - an indicator of when and to what extent investors should wait for a return on invested funds before breaking even (full return of the invested funds) and then generating profit (receiving more than was invested) . Understanding ROI is very important in terms of investment priorities. So, at first glance, it may seem that purchasing several apartments in Moscow for the purpose of further renting them out could be a good investment. However, the current situation in the residential real estate market in Moscow is such that it is possible to compensate for investments in the purchase (return the funds spent - taking into account inflation, exchange rate differences and other factors affecting the absolute amount of funds) only after several decades, if there is no there will be dramatic changes (but they will most likely lengthen the return on investment, because the cost of housing in Moscow is greatly inflated compared to comparable housing in other civilized countries and cities. A manager involved in residential real estate must be well aware of all the features of the market so as not to disappoint investors.

The profitability of the project is so important for commercial organizations that in the event of a large number of force majeure circumstances that sharply increase the cost of the project, the manager can decide to terminate the project, and this will turn out to be much more effective than continuing it at any cost. Unfortunately, government agencies have a different attitude towards money, which is why project monsters appear that last for decades, giving rise to long-term construction projects that turn into abandoned objects if funding for unprofitable work is stopped. An example of this is the building of the Aganbegyan Academy, which has been sparkling with the remains of crumbling blue glass for thirty years now, in the southwest of Moscow. Another example of the constant burying of project funds in the ground is the long and persistent attempts of various Russian administrations to develop a depressed area between the two capitals - Moscow and St. Petersburg. Expressways, farms for retired military personnel, settlements for immigrants from the former Soviet republics - all these are projects that have attracted billions of dollars in investments, but have not given any tangible results, except for the launch of the high-speed Sapsan, and then with a lot of restrictions. The “ambush” is clear: two megacities, like two giant vacuum cleaners, are blowing out the population from the adjacent territories, making the uniform settlement of this zone unrealistic. The constant shortage of labor resources in both capitals is guaranteed to depopulate all the “Potemkin villages”

The project budget is based on standard profitability, but MP is often specifically motivated by the Customer to reduce costs in order to achieve the planned result at a lower cost.

This goal appears for those small enterprises that conduct explicit commercial projects that involve not only the development and creation of a product, but also its sale to the consumer.

Marina Vishnyakova,
"Human Resources Management Handbook"

From this article you will learn:

Why do we need KPIs for managers?

What are the benefits of KPIs for managers?

What KPI criteria should sales managers use?

How to calculate KPIs for sales managers

The harmonious concept of KPI for managers, which appeared abroad in the last decade of the last century, came to us only in the 2000s. First of all, this system was recognized as a strong motivating regulator of business activities. In this publication, we will focus on the main performance indicators of managers that can be used productively for your organization.

Why do we need KPIs for managers?

The Balanced Scorecard (BSC) gained fame among managers due to the work of two authors - R.S. Kaplan and D.P. Norton. One of the significant components of this concept are models of motivational indicators, which over time received the name KPI (Key Performance Indicators). Due to the problematic nature and errors of translation, KPIs in Russian were called KPR (key performance indicators) or KPI (key performance indicators). The second option has gained great popularity, gaining a foothold among managers.
KPI models, embodied in real business, are an integral element of a harmonious concept of indicators. At the same time, they themselves are a system integrated into a significant number of functional management blocks, of which the leading positions are occupied by strategic management, sales and personnel management.

Which managers do KPIs apply to:

KPI for HR manager.

Today, KPIs are often used to motivate employees by linking their performance and salary. However, the main omission of a significant part of organizations is that either the wrong indicators or the largest number of them are taken into account. Therefore, the main goal when forming a KPI concept for an HR manager is to identify the correct indicators for each employee. Then the team will have a stable understanding of what tasks each of them faces, what kind of encouragement awaits them if they effectively achieve their goals.

KPI for project manager.

A high KPI for a project manager is not the most common indicator for available staff. The thing is that a good manager in this area is very valuable and is usually in no hurry to change jobs. Naturally, a high KPI for a project manager is a strong argument for decent remuneration. Even during a crisis, they are in demand and well-paid specialists. Project work, being a component of the entire work of the company, is also considered an agent of change. The exclusivity of high performance implies reforms in the settings of the entire management concept. It is necessary to make a good “sample” as part of the repeatable, cyclical activities of the company, that is, to integrate the results of the project into the processes of the organization.

KPIs for top managers.

The main indicators should be focused on the tasks set for the organization, on what you want to achieve in a specific period of time. For example, the goal may be to gain a high position in the market or to receive a good income from the sale of a business. For the first option, the manager’s KPIs will include sales volumes, increasing the customer base, and for the second - increasing the organization’s capitalization, selling at the highest possible price. The goal must be formalized; therefore, it is necessary to record it in writing and divide it into less significant parts, the totality of which will help to achieve the main goal.

KPI for office manager.

The main KPI indicators of the effectiveness of office managers are also areas of regulation. The following KPIs are meant:

completing work within the set deadlines;
acting within the budget, saving resources and choosing the right supplier;
positive assessment by employees and management of the organization of the level of administrative support;
indicators interconnected with the management of personnel of subordinate structures (staff turnover, compliance with positions, number of dismissals during the probationary period, high assessment of colleagues from other departments when interacting with the administrative team).

KPI for quality manager.

For example, KAMAZ OJSC uses several indicators to assess production efficiency, each of which is significant and effective in a certain position. You can call this a hierarchy of production or operational KPIs. They are led by two KPIs: assessment of the quality level of products from the consumer’s point of view - APA - Audit Past Assemble; the number of hours actually worked by employees per unit of production - HPU - Hours Per Unit. These KPIs define the organization's overall production processes. Just below are three more KPIs: the total time period of the production cycle - TPT - Through put Time; the share of products that were not subject to modifications and troubleshooting - FTT-First TimeThrough; compliance with the working schedule for delivery of final products - OTD - On Time Delivery.

KPI for development manager.

Typically, in a classic management approach, professionals recommend using 10 to 20 high-level KPIs. However, it is possible to go deeper into internal processes, increasing the number of KPIs that are relevant to local actions within the organization through monitoring. These KPIs relate to four main segments - finance, customers, processes, people. This approach helps regulate activities on all fronts.

KPI for sales manager.

The management of the organization decides to introduce KPIs for sales managers in order to have a forecast of financial receipts and company growth. There are good reasons for this, because a simple request addressed to a manager to provide a sales forecast for the next 2-3 months with a 75% probability of implementation can cause serious difficulties. All employee activities without KPI cannot be predicted, and the main goal that the organization needs to achieve is to achieve a planned economy. We consider it necessary to take a closer look at KPIs for a sales manager, examples of which will be found below.

5 benefits of using KPIs for a sales manager

Result oriented– the employee earns financial incentives commensurate with his performance.
Controllability– helps the manager regulate the efforts of employees depending on fluctuations in the market situation or the objectives of the organization.
Justice– adequate assessment of the employee’s contribution to the success of the organization and fair distribution of risks in case of failure.
Clarity and Transparency– employees understand why they receive remuneration, and they have the right to independently calculate the main indicators of their activities.
Stability– when target indicators change in some periods, the concept of motivation remains the same, which forms a trusting relationship.

What do KPI indicators consist of?

KPI is considered to be part of the general concept of goal setting, which, in addition to personnel performance indicators, contains strategic target indicators, a system of tactical and operational design and regulation. If the KPI concept is not related to long-term goals and basic parameters of the organization’s functioning, then it will remain only formal. In other words, the KPI concept for a manager will simply be ineffective.

Decomposition of goals by management levels:
Strategic business goals → Company goals → Division and department goals → Employee goals

Focusing on existing tasks, specifics of activity, powers and level of the official, KPIs for managers are identified. Speaking about KPIs, we can consider economic indicators that help assess commercial performance, as well as indicators of main processes and consumption of basic resources.

Step-by-step development of KPIs for managers

To develop a matrix of tasks and KPIs you need to take six steps:
Step 1. Make sure that the tasks put forward can actually be completed. Unrealistic demands from a manager can frustrate employees and significantly reduce their effectiveness.
Step 2. Optimally divide tasks into divisions, departments and employees. The goals of the organization should not be located in the manager's matrix.
Step 3. After properly dividing the goals, formulate personal goals and KPIs for managers. Two KPIs can correspond to one task. Pay attention to the full compliance of the KPI with the goals of the organization. Each task has its own weight, which directly depends on its importance, and their total sum is 100%. In addition, they may differ in the difficulty of achieving them, which should also be taken into account by the manager.
Step 4. Create planned indicators; to do this, you need to study information about the previous period. If this data is analyzed for the first time, then it is necessary to examine the market situation, especially for organizations with seasonal activities. Also consider existing resources. Only after collecting all the data can you put forward planned indicators. Remember that overestimated KPIs will lead to a decrease in performance, and too low ones will lead to unreasonably high financial incentives for employees.
Step 5. Start creating performance criteria. Refer to the calculation formula:

Performancei = Facti / Plan i, where fulfillment i = fulfillment of the i-th goal

Step 6. Correlate the results with the manager's indicators. For any goal, a satisfactory outcome must be identified. All received data is added up, and a total result is obtained, which directly affects the amount of the employee’s remuneration.
In the future, you can use a comprehensive construction of a goal matrix, where all indicators are divided into three groups:

unacceptable;
planned;
leadership

The amount of remuneration for managers is determined in accordance with the listed groups. For example, if an employee's final result falls into an unacceptable group, then he does not receive a bonus.

A competent KPI concept for sales managers provides high-quality management accounting and helps regulate personnel policies. An employee should strive not for quantity, but for quality. You need to understand that a sales manager is a completely creative profession, and an employee needs his own approach, since restrictions and tightening often reduce motivation and efficiency.

How to calculate KPIs for a sales manager

There is a KPI formula for a sales manager. We provide an example of calculating the quantitative KPI coefficient below:
IF (variable part) = Planned amount of the variable part * (KPI1 weight * KPI1 coefficient + KPI2 weight * KPI2 coefficient).

Table 6. Control of all proposed salary options for all possible KPI values (with a detailed explanation for many values)

KPI1/KPI2	<50%	51-89%	90-100%	>100%
<50%	5000 (option 4)	18 750	22 500	26 250
51-89%	18 750	22,500 (option 3)	26 250	30 000
90-100%	22 500	26 250	30,000 (option 1)	33 750
	26 250	30 000	33 750	37,500 (option 2)

Option 1
Fulfillment of the sales plan 90-100% (KPI1 coefficient value = 1). Execution of the activity plan 90-100% (KPI2 coefficient value = 1). The variable part (PV) is 50% and equal to 15,000 rubles.
IF = 15,000 rubles * (1×50% + 1 * 50%) = 15,000 rubles.
Monthly salary = 15,000 (fixed part) + 15,000 (variable part) = 30,000 rubles.
Conclusion: the employee has a planned salary established according to the payroll standard.
Option 2
Fulfillment of the sales plan is more than 100% (KPI1 coefficient value = 1.5).
Execution of the activity plan is more than 100% (KPI2 coefficient value = 1.5).
IF = 15,000 rubles * (1.5 * 50% + 1.5 * 50%) = 22,500 rubles.
Monthly salary = 15,000 (fixed part) + 22,500 (variable part) = 37,500 rubles.
Conclusion: the employee has more than the planned salary by 7,500 rubles, but the implementation of the plan for each of the indicators exceeds 100%.
Option 3
Fulfillment of sales plan 51-89% (KPI1 coefficient value = 0.5). Execution of the activity plan 51-89% (KPI2 coefficient value = 0.5).
IF = 15,000 rubles * (0.5 * 50% + 0.5 * 50%) = 7,500 rubles.
Monthly salary = 15,000 (fixed part) + 7,500 (variable part) = 22,500 rubles.
Conclusion: the employee has less than the planned salary by 7,500 rubles.
Option 4
Fulfillment of the sales plan is less than 50% (KPI1 coefficient value = 0). Fulfillment of the activity plan is less than 50% (KPI2 coefficient value = 0).
IF = 15,000 rubles * (0 * 50% + 0 * 50%) = 0 rubles.
Monthly salary = 15,000 (fixed part) + 0 (variable part) = 15,000 rubles.
Conclusion: the employee has 15,000 rubles less, because the variable component is 0 due to the implementation of the plan for each indicator being less than 50%.

In what case will KPI for a manager not work?

The organization's management did not take part in the formation of the goal tree.
It is not possible to calculate KPIs for managers due to the lack of information in the accounting system, subjectivity or falsity of their assessment.
Incorrect formation of KPIs for managers occurs when necessary indicators for achieving certain goals are ignored.
There is no direct connection between KPIs for managers and the concept of motivation.
Use of KPIs for managers in absolutely all departments. Then the leadership system may have errors and distortions.
There is a connection between KPIs for managers and the concept of motivation, but there is no consideration of the individual motivation of employees for whom the KPI system was implemented.
If the KPI system for managers does not imply payment for current achievements in long-term projects, but focuses only on the final result. In such situations, employees lose the connection between effective performance and encouragement.

How to motivate managers to work with KPIs

It is necessary to convey to employees that the introduced KPI system is not something unknown and scary. It should be explained that KPIs will not make drastic changes or undo their past achievements.
KPI can be defined as a very complex tool. This is why it is worth introducing and explaining this technology to users early on. To study the reviews, conduct discussions, discuss emerging issues, etc.
An indicator of the future success of KPI implementation is considered to be active participation in activities to set up motivation for KPIs of the general director and top managers of the organization. If the management team is not confident in the effectiveness of this project, such implementations will not be successful, which means that there is no point in them.
Top managers are required to involve middle managers in the formation of KPIs. These are the employees who will evaluate and plan their actions in accordance with the new concept. Managers will have to act unitedly and formulate a step-by-step plan for the implementation of the proposed project. Most often, the initial test of the concept is entrusted to commercial departments, and the back office is the last to be connected to the KPI system for managers.
It is necessary to stimulate the activity of employees when introducing KPIs and it is necessary to reward all efforts and merits.
Document flow must necessarily correspond to the innovations being introduced. To do this, you should separately plan the transition from the existing concept to KPI, and this will not happen quickly. The transition period will take some time, so we need to control this process.
Changes and innovations can be very beneficial to an organization, but it must be ensured that they are consistent with and work for the company's core purpose.

How to easily implement KPIs for sales managers in your company

When creating and introducing a KPI system for managers, it is worth making sure that the calculation algorithm remains easy and does not require constant explanation. Complex and incomprehensible systems do not inspire confidence, but introduce dissonance into the work of the team. May go so far as to refuse work responsibilities. Managers need to clearly formulate the meaning of introducing KPIs; staff should not have any questions about this. When explaining, you need to draw the attention of employees to the advantages of this concept. It is advisable to implement KPIs for managers in test mode and eliminate all shortcomings identified by practice, this way you can avoid errors in salary calculation.
Automation of the process is recognized as an important factor in the effectiveness of introducing KPIs for managers; various CRM systems are used for this.
You can develop a KPI system yourself, but it is quite difficult and leads to making certain mistakes. Serious organizations trust the formation of a KPI system to specialists who have extensive experience in this field.

Who can help develop KPIs for managers