“Shouldn’t we have already analyzed first quarter data?” Ideally, yes, as well as the second and third quarters. The best way to make use of a Key Performance Indicator (KPI) is to continually monitor its progress, thereby increasing the likelihood that the KPI will be met. Continual review of a KPI throughout the year allows for timely decisions to be made to improve performance in real time and increase the prospect that the annual goal is achieved.
The use of a KPI during the time of performance has a different purpose then when engaged in the Key Performance Indicator Assessment (KPIA) process. During KPIA, the focus shifts from the formative (monitoring) to the summative use of data whereby the final values of KPIs are calculated and verified. Once final KPI values are calculated and reviewed they are then ready for use in the Key Performance Indicator Evaluation (KPIE) process where an in-depth review takes place to provide narrative and insight regarding the summative KPI values.
The questions listed below are illustrative examples of those that arise when a process moves from the preparation phase to the action phase.
KPI Use Continuum
Determining where your organization is on the KPI use continuum is important in order to maximize the efforts that have already been invested in the KPI formative process.
As shown in Figure 1, organizations generally fall into one of four categories:
Category 1: The organization continually monitors KPIs
Category 2: The organization monitors KPIs quarterly
Category 3: The organization monitors KPIs annually
Category 4: The organization has KPI data but does not yet have a plan to analyze the KPI data.
Figure 1: KPI use continuum
An organization may fall in-between one of these categories, where it may be closer to one category than another with the exception of category 4. Category 4 represents an organization where there is no systematic process yet developed to use data to measure KPIs although the data may exist.
Organizations in categories one and two perform some sort of formative KPI process by the very nature of the time period associated with the time of KPI review. When it is time for the annual process, where summative information is determined, those that represent categories one and two have additional formative data that can be used to conduct a data quality check for the summative values that were calculated. Additionally, as will be discussed in the KPIE process, these values can add to the contextual narrative associated with the final numbers that were calculated. Similar to categories one and two, those organizations in category 3 simply need to follow the process outlined. Unlike categories one and two, category three organizations will not have formative data points available for comparison since they are just engaging in the review of their KPI data. A special blog within a blog will occur later on to address those organizations that identify with category four.
In addition to the final annual values calculated for each KPI, it is also important to calculate the values of KPIs for each quarter based on data that has been verified at the end of the year. Calculating quarter specific values will serve as important points of reference when establishing trends that occurred during the year.
Importance of First Quarter Data
Is the first quarter the baseline or the frontline? In many cases the emphasis of first quarter data is one or the other. When the first quarter is the baseline, then KPI performance during this time period is used to compare the performance of the remaining three quarters of the year. The first quarter is often used soley as a baseline value when a new initiative is launched at the beginning of the analytic period and tweaks to the process are made during those first three months. Alternatively, a baseline using the first quarter may be implemented when looking at a new initiative that is started in the second quarter of the year.
If the KPI is one that is routinely used, then the first quarter results may be the frontline value representing a value that is expected to sustain at similar levels the rest of the year. There is less mystery with a frontline number, it is usually predicated by historical data and is anticipated within a range of certainty. Baselines are often diagnostic and set a bar for growth or reduction expectations.
Even though the first quarter data may be a frontline, it often becomes more of a baseline as time moves on as it becomes a comparative data point. For example, consider that renewable energy consumption is a KPI for a company. The amount of solar energy the company can utilize is expected to remain consistent at X kilowatts of power a month due to being in a sunny location year-round. The first quarter produced X kilowatts of power as expected, but the second quarter yielded a decline in power consumption by one-fifth. The second quarter results were not expected. By the very nature of the unexpected second quarter result, the first quarter becomes a baseline value of what is expected versus what actually happened in the second quarter.
The team should make sure that the first quarter data is calculated and cross checked. The team will also want to make note of the following (all of these are described in the next Blog article (#12)):
Blog #11 Call to Action Question: Where is your organization on the KPI use Continuum?
Blog #12 Sneak Peek: The Quarterly