--By Purna Man Shakya

 

KPI stands for Key Performance Indicator which evaluates whether the defined roles are met satisfactorily or not. It is specifically linked only to Human Resource Department, but has to do with the entire organization. Each Department/Division of an organization usually has set and identified KPIs, which are measurable and quantifiable in nature so as to measure the success of the organization in terms of the organization's mission and goals. KPIs are also known as KSIs (Key Success Indicators). KPIs are set within KRA and KPA. KRA refers to general area of outcomes for which the department’s role is responsible and related to organization’s vision, mission, goals, objectives and corporate strategies. More specifically, KRA describes roles and responsibilities of a person or department should perform. When the key result area is large it is broken down into manageable area for easy evaluation which iscalled Key Performance Area (KPA). KPIs are developed to manage each KRA and KPA. But the number of developed KPIs should be small so that employee focuses on the achievement of essential KPIs.The best way to design good KPIs is to communicate with the company business managers who know the jobs the best in their own divisions. After designing KPIs, the  HR department should put high effort in its analysis. Simply saying, data should speak reality. 

 

Organizations are normally using KPIs such as number of CVs per channel, lost hours due to absenteeism, lost hours due to lateness, profit per employee, cost per employee, HR cost efficiency, HR cost vs. productivity, facilities vs. productivity,  grievance handling, employee satisfaction,  reporting system, technology usage, leisure time management, interior decoration, housekeeping, learning, presentation, disciplinary action, performance reviews improvement, cross functional meetings, turnover, employee engagement etc. Apart from these, other KPIs can be developed under separate KRAs such as recruitment, training, health and safety, performance, employee loyalty, working time, HR efficiency, compensation, labour relation, regulation compliance, employee satisfaction, HR budget, job leaving, workforce, employee development, internal promotion opportunities, employee motivation, and willingness of employees to recommend the Company as an employer. 

 

Generally, best HR KPI’s should be SMART (Specific, Measureable, Achievable, performance Relevant, and Time-bound-i.e. containing deadline requirement) and follow these rules of thumb:

 

• Aligned with the strategy and business plan of the organization: The targets of the HR KPI should be linked directly to the strategy of the organization

 

• Personally owned: The HR KPI should be owned in two ways. Firstly, a person should be made accountable for its success, secondly it should be meaningful for that person.

 

• Actionable: Every HR KPI should have a project or a set of actions which will lead to meeting the target. It should be within the circle of influence.

 

• Well defined: Every KPI should be precisely defined. It should be formulated in a way so an outsider will be able to look at it and find the result.

 

• Relevant: It must be relevant in the specific context of HR department of the particular company.

 

• Timely: There must be a specific time when the target should be met.

 

• End KPIs:KPI’s success needs to be linked with the output. Let us consider a KPI which is about the number of people who had review. Completion of review is just the achievement of mean goal which is not an end in itself. It is the desired results of the annual review which are interesting and is the end result of the review. All HR KPI targets should be end-goals not the mean-goals.

 

• KPIs must be Predictive.

 

• Few: Generally three to four KPIs are considered optimum as far as effective results are concerned and above them lead to the confusion. When an individual has too many KPIs one tends to select comfortable ones and avoid others consciously or unconsciously. So, better idea would be to select few and meet them all. 

 

• Linked to bonus. It should make a difference to the person if he/she meets the HR KPI target or not.

 

 

How KPIs are designed?

Generally KPIs can be developed at strategic and operational levels. Though there is not clear-cut demarcation between strategic and operational level KPIs, strategic KPIs should address the measurements required at high level and generally reflect executives’ vision whereas, operational KPIs are concerned with tactical and operational goals for day to day activities. Strategic KPIs take a top down approach and operational KPIs take bottom up approach. Following steps are suggested while designing KPIs:

 

• Establish vision, mission, strategic goals, and values of the organization. 

 

• Design Key Result Areas (KRAs) from top to bottom, i.e. from CEO/MD to functional heads and down below. This will help to keep KRAs aligned to organization’s Vision and Mission. Also, mention the importance of 

each KRA

 

• Identify necessary procedures to perform each KRA

 

• Identify the measurement criteria for each KRA which is called KPI.

 

• Summarize designed KPIs in a table.

 

• Provide training for managers and employees to ensure that they understand and know how to use 

the KPIs.

 

• Ensure that resources and other support systems to implement the KPIs meet requirements.

 

Precautions while setting KPIs

HR KPIs are generally bad. Major reasons can be: (1) some just copy from other organizations, consultants or books and it is not going to work; (2) Some don’t think strategic. Only strategic KPI’s will ever have the chance of being good. Unfortunately, creating strategic KPIs is more difficult than non-strategic ones. (3) They don’t matter. If there is no consequence of meeting the KPI target they will not have any effect. The matter is not the quantity; it is the quality of these KPI's as being aligned to the strategy and the Organizational goals.

 

In conclusion, HR KPIs are the most powerful tools to manage an HR department. However; they still fail and do not deliver their promise and consequently are increasingly getting a bad reputation because they are poorly formulated and used. In practice this happens in most places. Bad HR KPIs are a lot worse than not having any at all. So, good time should be taken to formulate a few really outstanding ones so that they are used for the right purpose. Also, KPIs lose their accuracy over time; therefore, it is necessary to revise KPIs periodically. The problem is that KPI’s do work as much as people tend to follow them. If they are badly formulated, employees will behave equally bad. Whatever key performance indicators are selected, they must reflect the organization’s goals, must be key to its success and must be quantifiable. 

Shakya is a Lecturer at Grammar Public College, a Management Consultant  with BS Nepal and Chairman of Sarathi Nepal, Lalitpur. The article is based on a discussion organised by Real Solutions recently.