Vendor Performance Metrics

Metrics

Vendor performance metrics are an objective, consistent method for evaluating the delivered end product to determine: Technical Risk; Cost; Value to the organization; System Reliability; System Performance; Overall Quality; Conformance to industry standards or regulations; Vendor performance metrics serve as the basis of effective benchmarking.

Vendor performance metrics are an objective, consistent method for evaluating the delivered end product to determine:

• Technical Risk
• Cost
• Value to the organization
• System Reliability
• System Performance
• Overall Quality
• Conformance to industry standards or regulations

What is a Key Performance Indicator (KPI)?

• In organizations, it is crucial to have a good understanding of what is going on at any point in time. This can take many forms and there are countless approaches to do this. The implementation of so-called KPIs – key performance indicators - is one of them.
• Application of KPIs
• KPIs can be applied to many elements deemed critical to the success of the overall business and its individual operations such as employee performance, process throughput efficiency, training effectiveness.
• A popular saying in organizations is “what gets measured gets done“. Key performance indicators (KPIs) are the tool of choice for any professional: they are metrics used when devising strategies, when measuring performance, and when setting goals

Application of KPIs

• KPIs have an extremely long history in practical use. Below are some examples of how they have been used in various settings: 
• KPIs in finance: measuring return on sales, return on investments
• KPIs in operations: efficiency rations, lead time, parts per day
• KPIs in healthcare: average days of hospitalization, treatment costs per patient, mortality rate per hospital
• KPIs in banking: number of assets, number of loans, customer retention
• KPIs in retail: expected return, customer satisfaction, sales per store
• KPIs in teamwork: projects completed, clients satisfied
• KPIs in corporate social responsibility: stakeholder cooperations yielded, money donated

What are the benefits of Key Performance Indicators (KPIs)

KPIs have been used in management for a long time. The many benefits associated with using KPIs are one of the reasons why they are so popular in the first place.

KPIs help quickly understand complex statuses

• There are two things many organizations can probably agree on: efficiency is important, and time is money. KPIs are incredibly useful for assessing the many intertwining processes and activities going on in organizations. They can help save time and increase efficiency in management.

KPIs can be used to formulate goals and to measure their implementation

• Goal setting is an important management tool.
• Goals only make sense when their implementation and progress can also be measured. 
• This is why KPIs are the tool of choice for goal-setting and progress monitoring: they help define the steps that are needed to reach particular goals and are ideally embedded into broader strategic considerations

KPIs are easy to formulate and devise

• KPIs are not complex in themselves – in fact they are easy to create and to “set up”.
• A brief analysis of the situation at hand is the starting point to creating a key performance indicator.

What are the shortcomings of Key Performance Indicators (KPIs)?

• There are no magic management tools that are able to solve all problems.
• In fact, it is common to assume that once a KPI has been identified, define and formalized, the KPI battle is won (Bauer, 2005).
• As with many other tools, also KPIs have shortcoming which should be mentioned

KPIs tend to oversimplify complex issues

• The main mechanism behind using a KPI is the aggregation of complex information into one number that reflects the entity’s status. While this simplifies complexity, it can also lead to the loss of important information. This is crucial to be aware of in decision-making

KPIs are easily faked

• KPIs reflect the status of an entity on a high level – their use is usually not questioned and numbers stand as they stand. This makes KPIs an easy target for manipulation.

KPIs can be misinterpreted

• Managing organizations and organizational processes using key performance indicators requires a well-aligned team or group within the organization who all share the same understanding of the KPI. If this is not the case, misinterpretations and misunderstandings can take place, which not only hamper decision-making efforts but can also lead to team conflict. 

Author: Nazia Tabassum