Your organisations’ purpose, mission, and strategic goals are important. Converting these into the right outcomes and delivery for your stakeholders is critical. You have to uncover all choices and take the right decisions in a timely fashion. To do this though, you need to measure and report on the right things in the first place. Have you considered the following lately?
- The information Managers are basing their decisions on?
- How ‘real time’ are your performance stats? Do you even get updates on performance?
- Do you know how much uncertainty (risk) your organisation is taking on?
- Is your business measuring the right things to thrive and delight stakeholders?
- Are you delivering performance regardless of unexpected or last minute uncertainties (risk)? Has that materialised in cost lately?
- Could you be compromising your own Governance structure (which, incidentally was created from the values and commitments you made to your stakeholders) because of poor planning or lack of management information?
If you are following our blogs especially our ‘Risk Appetite Blog’ which talks about ‘where you want to take the most or least risk’, you will already know the importance of indicators that measure how well you are doing. These same indicators can also help to determine your organisations’ next course of action.
It’s not about creating new ways of doing business, it’s not about building large suites of management information it is about identifying and measuring what is important to your organisations’ delivery and to stakeholders.
Key Performance Indicators (KPI’s) Key Performance Indicators are those annoying little points that we all have to measure up to, in order to get different forms of reward or recognition at work. Many company’s use them to measure how many projects you ran, how successful your projects were, how much money you saved the organisation, how well liked you are with your peers etc. They are very keenly used in sales departments too because they are easy to link to £’s/targets and rewards. This area has often keenly used KPI’s to incentivise or drive people harder, faster, or smarter. They are important at the individual and corporate level:
It’s likely that your HR department will have had quite a lot to do with assigning your Teams’ KPI’s along with your Line Manager. KPI’s should not be a surprise to your staff, they should be found embedded within each of their role profiles, which they will be very familiar with.
KPI’s are created when the role profile is written. They should be aligned with departmental objectives, and managed through regular communication between Team Leaders and staff, Monitored by Management, Evaluated during one to one sessions with staff and reported to the Senior Executives via the relevant Committee(s). They should always align to the critical success factors of your organisation as stated in your Mission Statement and Strategy.
Key Risk Indicators (KRI’s) One of the most likely places that you’ll find a de facto set of key risk indicators, is almost certainly going to be in a financial institution such as a bank, investment firm or insurance company.
The reason for this is almost undoubtedly because of the worldwide financial crash that happened in 2008. It caused so much harm to so many customers and businesses (large and small) by impacting their finances and personal well being, that all companies falling under the umbrella of financial services were suddenly subjected to stringent rules by regulators, regarding the adequacy of their financial provisions. It was advised that only adequate risk management could truly protect their capital from loss.
From then on and still now, US, EU and UK regulators, continue to regularly impose measures, which promote financial stability and prevent excessive risk-taking. These firms’ Boards’ were suddenly aware that they could no longer prove their financial stability to regulators and shareholders by just providing a good bank balance, but that they had to prove how well they were managing uncertainty in everything that they do and the world in which they work, and demonstrate evidence to that effect, because if something unexpected comes along without you having thought mirror, signal and manoeuvre beforehand, it can cost a lot of money.
Financial regulators weren’t particularly worried about banks going bust because of mismanagement, but they were worried about and accountable to, consumers whom regulators are supposed to protect. So, going forward not only did financial service providers have to show regulators how they were doing risk management, but they had to become better at doing it. They had to consider everything that they do including small dilemmas like ‘whether it was likely that all their staff would leave when they changed the brand of coffee in their canteen’, because lots of small risk events occurring at the same time could also have the potential for being very costly, one way or another.
Slowly, risk indicators were developed with various people around the organisation being responsible for monitoring their own sets for signs that they may reach the limit of company tolerance or fall out of line with the company Mission or Strategy. Staff also watched out for batches of similar indicators ‘flashing red’ at the same time! Without creating these indicators and apportioning them around the business, Senior Management would never have been able to keep a ‘handle’ on protecting the bank balance. Firms could end up in deep water with regulators if they didn’t make every effort to protect their consumers.
Key Control Indicators (KCI’s) You should be able to find controls in your organisation-wide, non-financial risk logs, because a control is the mitigation that you have built to prevent either a risk event from occurring/or to lessen the impact if it does occur. The mitigations that you devise to manage the most volatile risks, give you great insight to the key controls within your organisation and from there you get a view of how aligned operations are to your company Mission and Strategy (If they aren’t, then does something need reviewing?). Controls can also be found residing in your business processes and if they aren’t then I would be quick to find a home for them there. Indeed, if your risk mitigations (controls) are to be effective, you should make sure that they are embedded and used alongside all of the everyday tasks that your business performs. Their use should enable consistency, efficiency, and effectiveness, whilst protecting your business from harm.
Key Governance Indicators (KGI’s) Governance is the place where your organisation has set out of all the behaviours, laws, rules and guidance that will be needed to steer your business toward success. These things will ultimately prevent hazardous happenings and keep employees on the right road to success.
Whilst ‘Key Governance Indicators’ is a relatively new term for individual businesses, it seems to have been quite commonly used in worldwide forums for several years now. Perhaps this is no coincidence since these forums have their work cut out monitoring economic behaviours’ around the globe now that social consciousness has arrived!
There is no getting away from Economic, Social Governance (ESG) in the business world any longer and quite rightly too. Firms that are operating with the sole intention of bringing in the bucks at any cost are making a big mistake if they think they will have any form of longevity since the 2020’s arrived. A tip to the employees who work there would be to ‘get out as soon as you can!’ because they wont be around for long.
Realising this changing tide, many Management Consulting firms are currently making the most of the sudden societal consciousness about being ethical, environmentally friendly, sustainable etc. They are urging organisations, businesses, and the public sector to climb on-board with the concept of designing a whole new management framework for it too. That could be an expensive trip folks. The good news is that whilst it is clear that social topics have evolved and increased now, many companies have been producing policies and procedures for ethical, well being, anti slavery, corporate responsibility, bribery and corruption etc. for some years already. If you have a hole in your governance policies and procedures because something has been missed, then it is easy enough to create something new and slot it in here. No need for new silos created by ESG frameworks. If you manage uncertainty in all of the things that your organisation does and the world in which it operates, this is called Enterprise Risk Management and it encompasses everything already, including the provision of handy little pockets of space to place something new when it comes along. It is future proof and excellent value for money!
In Summary:
- Key indicators can be uncovered through personal interviews with the Staff and Management who were responsible for creating the Risk Appetite Statement. Some organisations use this as a way of pre-populating a new risk log.
- Key indicators should be added to and flagged in company Policies and Procedures.
- It would be useful to add key indicators to the organisational risk log and flag them as such for the purpose of Measuring, Monitoring, Evaluating, and Reporting.Triggers and limits can be activated via tolerance levels assigned to each functional area.
Like objectives – you will need to ensure that your indicators are SMART (specific, measurable, achievable, realistic or relevant and some will also benefit from being aligned to a timeline).