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How do you ensure operational KPIs are relevant, realistic, and actionable?

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Operational due diligence (ODD) is the process of evaluating the operational performance, risks, and controls of a target company or a portfolio company. One of the key aspects of ODD is to assess the operational key performance indicators (KPIs) that measure and monitor the efficiency, quality, and profitability of the business. But how do you ensure that these KPIs are relevant, realistic, and actionable? Here are some tips to help you design and implement effective operational KPIs.

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Valerie Nielsen

| Risk Management | Internal Audit | Process Improvement | Technology | Operationalizing Compliance | Third Party…

1 Align with strategic goals

The first step is to align your operational KPIs with the strategic goals and objectives of the company or the investment. This means that you need to understand the vision, mission, and value proposition of the business, as well as the market, competitive, and regulatory environment. Then, you need to identify the critical success factors and drivers of operational excellence that support the achievement of these goals. For example, if your goal is to increase customer satisfaction, you may want to track KPIs such as net promoter score, customer retention rate, or service level agreement.

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Valerie Nielsen

| Risk Management | Internal Audit | Process Improvement | Technology | Operationalizing Compliance | Third Party Vendors | Geopolitics | Revenue at Risk | Board Member | Transformation | Governance | Speaker |
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I like to start this type of discussion with a definition so everyone is on the same page. Operational KPIs assess performance vs. strategic KPIs measure how long-term business objectives have or have not been met. The senior leader(s) responsible for Operational KPI development should speak to those individuals who manage the competitive position and profitability of the company. Then, the senior leader needs to ask open-ended questions to learn the key points that create success or lackluster performance. The next step would be to propose a set of Operational KPIs to assess whether the company is controlling costs and managing productivity, materials, and labor. The How, What, and Why of the Proposed Operational KPIs.

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Jinu Chacko

Strategic Operations Leader | MBA - Warwick Business School
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In my experience, aligning operational KPIs with strategic goals is crucial for organizational success. Start by understanding strategic objectives and collaborating with stakeholders to identify key focus areas. Clearly define SMART objectives for each KPI, ensuring they contribute directly to strategic goals. Cascade KPIs throughout the organization, promoting alignment at all levels. Regularly review and adjust KPIs based on changing conditions, using a balanced scorecard approach for a comprehensive view. Establish feedback mechanisms and communicate the connection between KPIs and strategic goals to ensure everyone understands their role in achieving organizational objectives.

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2 Define SMART criteria

The second step is to define SMART criteria for your operational KPIs. SMART stands for specific, measurable, achievable, relevant, and time-bound. This means that you need to specify what exactly you want to measure, how you will measure it, what is the target or benchmark, why it is important, and when you will measure it. For example, if your KPI is customer retention rate, you may want to define it as the percentage of customers who renew their contracts or subscriptions within a given period, measure it using a CRM system, set a target of 80%, explain why it reflects customer loyalty and profitability, and measure it quarterly.

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Jinu Chacko

Strategic Operations Leader | MBA - Warwick Business School
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In my experience, ensuring operational KPIs are effective involves applying the SMART criteria. Specific goals should be clearly defined, avoiding ambiguity and addressing who, what, why, where, and which resources are involved. Measurable criteria ensure progress tracking through quantifiable metrics, asking questions like how much or how many. Goals must be achievable within given resources, striking a balance between challenge and feasibility. Relevance is crucial, aligning goals with broader business objectives for meaningful impact. Time-bound goals establish a specific timeframe, fostering urgency and preventing open-endedness.

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3 Involve stakeholders

The third step is to involve stakeholders in the design and implementation of your operational KPIs. Stakeholders are the people who have an interest or influence in the performance and outcomes of the business, such as managers, employees, customers, suppliers, investors, or regulators. By involving them, you can ensure that your KPIs are relevant, realistic, and actionable for them, as well as aligned with their expectations and needs. You can also gain their buy-in, feedback, and support for the KPIs. For example, you can conduct surveys, interviews, workshops, or focus groups with stakeholders to solicit their input and opinions on the KPIs.

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Jinu Chacko

Strategic Operations Leader | MBA - Warwick Business School
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In my experience, crafting effective operational Key Performance Indicators (KPIs) involves active stakeholder engagement. Identifying key stakeholders and conducting interviews or workshops helps align KPIs with organizational goals. Through collaboration, we ensure KPIs adhere to SMART criteria, making them relevant and measurable. Continuous feedback loops and transparent communication refine KPI definitions. It's crucial to clarify actionable steps associated with each metric, empowering teams to drive performance improvements. Regular review meetings and a commitment to continuous improvement foster a culture of adaptability.

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4 Communicate and visualize

The fourth step is to communicate and visualize your operational KPIs to the relevant stakeholders. This means that you need to present and report your KPIs in a clear, concise, and consistent manner, using appropriate formats, tools, and channels. You also need to use visual aids, such as charts, graphs, dashboards, or scorecards, to display your KPIs in a way that is easy to understand and interpret. For example, you can use a balanced scorecard to show how your KPIs link to the strategic goals, or a dashboard to show the current status and trends of your KPIs.

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5 Monitor and improve

The fifth step is to monitor and improve your operational KPIs on a regular basis. This means that you need to collect and analyze data on your KPIs, compare them with the targets or benchmarks, identify gaps or deviations, and take corrective or preventive actions. You also need to review and update your KPIs periodically, to ensure that they are still relevant, realistic, and actionable in the changing business environment. For example, you can use a PDCA cycle (plan-do-check-act) to continuously measure and improve your KPIs.

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6 Learn and share

The sixth and final step is to learn and share your operational KPIs with the relevant stakeholders. This means that you need to evaluate and reflect on the results and outcomes of your KPIs, identify best practices and lessons learned, and share them with others who can benefit from them. You also need to celebrate and reward the achievements and successes of your KPIs, and recognize and appreciate the efforts and contributions of the stakeholders. For example, you can use a SWOT analysis (strengths-weaknesses-opportunities-threats) to assess your KPIs, or a case study to showcase your KPIs.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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How do you ensure operational KPIs are relevant, realistic, and actionable?

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1 Align with strategic goals

2 Define SMART criteria

3 Involve stakeholders

4 Communicate and visualize

5 Monitor and improve

6 Learn and share

7 Here’s what else to consider

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