Process Performance Measurement and Key Performance Indicators
This domain tests how to define, select and interpret process performance indicators, including baselines, targets and the difference between operational and strategic measures.
KPI fundamentals
Process performance measurement uses indicators to assess efficiency, effectiveness, quality, time, cost, flexibility and compliance. A Key Performance Indicator (KPI) is a small set of measures tied to strategic and process goals. Good KPIs are specific, measurable, achievable, relevant and time-bound, with a defined formula, data source, owner, baseline and target. Leading indicators predict; lagging indicators confirm results. Operational indicators such as cycle time and first-time-right differ from strategic outcomes such as customer retention.
Worked example
A purchase-to-pay process measures cycle time from requisition to payment, first-time-right invoice rate and cost per invoice. Baseline cycle time is 12 days; target is 5 days. First-time-right is 70%; target 95%. The team also tracks percentage of invoices paid on time as a lagging outcome. Reasoning: cycle time and first-time-right are controllable process indicators; on-time payment depends partly on supplier behavior and cash policy.
Traps
Do not measure activity volume and call it performance. Avoid too many KPIs; they dilute focus. Do not set targets without a baseline. Beware gaming: measuring approvals per hour can encourage rubber-stamping. Distinguish process performance from individual appraisal.