David Parmenter´s Key Performance Indicator Methodology
Organizations are faced with an urgent challenge: outdated performance management systems. These systems push managers to prioritize short-term wins that seem beneficial but weaken the organization’s long-term success. Meaningless measures are set to follow these short-term goals.
Parmenter has studied and observed performance management for over 40 years. He published a book in year 2012 called Key Performance Indicators: Developing, Implementing, and Using Winning KPI’s. The book gives advice on the whole process on starting to use key performance indicators. With the help of his book, he shows that organizations can gain value with clarity and improve performance with the right kind of measurement (Parmenter 2020, pp.xvii-xxvii).
Critical success factors
Parmenter’s winning KPI methodology describes that the sources of all key performance indicators should be the critical success factors. All measurements and actions have unplanned and planned effects. Parmenter writes about the dark side as a negative aspect of measurement. Sometimes employees want to reach their goals so badly that they do not serve the customer anymore. For a moment the indicator might be at a good level, but in the long run, it is not a sustainable indicator (Parmenter 2012).
Critical success factors are operational matters that are urged to be accomplished daily. Employees should allocate their working time mainly to the company’s critical success factors. Typically, companies have only a few critical success factors. Critical success factors enable company´s long term success (Parmenter 2020, pp. 114-119).
Indicators
Parmenter has divided the key indicators into key performance indicators and key result indicators. Performance indicators are measures that describe what teams are delivering. A team or several teams have joint efforts to work towards a shared direction. The responsibility of the performance and its measures is clear. Control and transparency increase with these measures and ownership is clear (Parmenter 2020, pp. 3-4).
Key performance indicators are measured frequently, and they are non-financial gauges of the performance of a company. KPI’s cannot be expressed in currencies. KPI’s are reported and shown to the whole staff. Employees understand the measure, if it is not of a good level, action needs to be taken and it is understood what is required (Parmenter 2020, pp. 6-13, 15).
Result indicators tell how teams are collaborating with each other. It does not talk about the performance, and you cannot identify which team executed and which did not. Result indicators can be identified with different currencies and can be, for example, weekly sales (Parmenter 2020, pp. 3-6).
KRI’s can be non-financial or financial indicators. KRI can be for example net promoter score (NPS) that is often used in human resources as employee satisfaction KRI or working capital ratio, used in finance to find out how much money is tied in short term operations. KRI’s are measured monthly, bimonthly, quarterly, and annually (Parmenter 2020, pp. 4-6, 15).
Three stages of a KPI project
Parmenter gives three (3) precise stages that needs to be followed in KPI projects that have been successful in different companies in his studies. First stage creates the concreate foundation for a change management project. Success of the implementation depends on the fact how well the change is lead and sold. Timing is crucial, especially top management needs to have enough time for the project. The methodology needs to be taught for the whole project team. High commitment is needed and project leadership cannot be outsourced to consultants. Frequent progress reporting is required towards top management (Parmenter 2020, pp. 45, 84, 96).
Second stage focuses purely on critical success factors. With the help of critical success factors each individual is heading to same direction and each day the important tasks are finalized. Stage two helps in the process of finding organization’s critical success factors. Normally each company has five to eight critical success factors. There are also some examples of typical critical success factors and indicators linked to them (Parmenter 2020, pp. 45, 114).
Third stage focuses on setting measures and how to create a dashboard or template for reporting. Selection of indicators goes often wrong and Parmenter gives lot of examples what kind of measures other have selected. Often too many measures are selected and not enough employees are taking part of the process. Phrasing of indicators and especially the key performance indicator is critical, so alignment of employees can be achieved. At this stage its critical to go through all potential KPI’s if those actually have all the characteristics of a KPI. For example financial indicators are not such indicators. KPI’s are measured regularly, are indicators for the whole company and have a crucial effect on the company’s success (Parmenter 2020, pp. 45, 148, 190).
Summary
Parmenter’s KPI project focuses on identifying and utilizing key performance indicators (KPI) in achieving the organization’s strategic goals. The project emphasizes the use of only a few business-critical metrics, and these are closely monitored to support decision-making. It emphasizes the importance of real-time information and continuous development, which helps organizations react quickly and efficiently to changes.
References
Parmenter, D. (2012). Winning KPIs. https://www.fm-magazine.com/news/2012/jan/winning-kpis.html Retrieved 10.12.2021
Parmenter, D. (2020). Key Performance Indictors: Developing, Implementing, and Using Winning KPI’s (4th ed.). John Wiley & Sons Inc.
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