KPI’s or Key Performance Indicators are incredibly powerful tools for measuring an operator’s success within a subsidized environment. KPI’s are most often included in management contracts that include a risk/reward component. We love KPI’s, but they are only effective if they are measurable!
The first step in creating powerful KPI’s is defining what is most important to your organization. We find that many clients aren’t as aligned internally as they think they are. This presents a big problem when managing an outside operator. The operator can only work with the information they are given; if there is a discrepancy within varying levels of leadership, this can create the belief that the operator is not performing well or doesn’t understand what is important to the client. In other words, lack of internal alignment can lead to useless KPI’s.
It is important to collaborate with operators to develop KPI’s that are fair, measurable, objective and achievable. One thing to keep in mind as you develop KPI’s is that it’s okay for them to change over the course of the life of the contract; as a matter of fact, it is encouraged! KPI’s need to evolve with the business.
Check out JGL’s tips for supercharged KPI’s:
- When developing a contract with a new operator, it is okay to include language that explains certain KPI’s will be agreed upon after a determined length of time. Operators need to get to know the business before they can properly set appropriate goals; goals that are set too soon are often discarded as irrelevant.
- Be very thoughtful about the number of KPI’s that are included in a contract. JGL typically recommends having around 4-6 strong ones. There is no need to include subjective KPI’s that are not clearly measurable.
- The risk and the reward must be meaningful for KPI’s to work! We always recommend 50% risk and 50% reward whenever possible.
- KPIs should be clearly defined and easy to understand. Avoid vague language or metrics that can be interpreted in multiple ways. KPI’s should be quantifiable, and the metrics should be numerical so progress can be tracked objectively.
- It is important to set goals by establishing achievable targets that challenge the operator without being unrealistic.
- As stated earlier, KPI’s should evolve with your business and be reviewed regularly. Don’t be afraid to assess whether or not they remain relevant and make adjustments as needed. Changes in hours of operation, headcount, costs, and program initiatives are examples of the details that should be considered when assessing the viability of a KPI.
- Engage key stakeholders in developing KPI’s. This ensures buy-in and alignment across the organization.
- Clearly communicate KPI’s to all relevant parties and use dashboards or other visual tools to make data easy to interpret and monitor. KPI tracking should be included as part of the operator’s presentation during quarterly business reviews. Too often we hear that KPI’s have been forgotten about until it’s time for contract renegotiation.