KPI based management for multilevel companies (Part 7)
Cascading: conclusion
Indicative and Imperative KPIs
It is not a secret that in practice the system of budgetary management receives unflattering recalls and censures for the completely avoidance a company strategy, i.e. there is no direct connection of the budget of development (constituted on three – five years for fulfillment of KPIs of the Innovation and Learning and Internal Process Perspectives) and the master budget (the system of the interconnected budgets approved for no more than a year). At the same time, if the process of construction of budgetary management model is performed in coordination with the strategy, formulated in terms of KPIs, such system is really capable to solve the problems facing to top management of the company, referring to the corporate administration. To implement the model of KPIs to the multi level companies’ management systems (with the need of organizing cascading: the process of distribution of authorities and responsibilities for indicators among the lower hierarchy level subsystems’ managers and specialists) it is rational to divide KPIs into the following groups:
- “Indicative” indicators;
- Imperative (control) indicators.
The quantity indicative KPIs correlates with the purposes and processes of the services and divisions, associated with them. Examples of such KPIs could be: “Quantity of document circulation per week”, “Quantity of specialized exhibitions per season” and others. So “indicative” indicators can be both leading, and lagging.
Imperative (control) indicators are creating by the top hierarchy levels of management and their quantity is the same as the quantity of Perspectives, the top level categories, including the overall sum of the subcategories and KPIs. All the imperative indicators are actually lagging ones. These indicators are needed for top management (it also can be a management company) to control the performance of lower level management (it also can be an enterprise or a factory). Thus it is supposed that target values of control indicators are formed by the higher level management (or company) in an exclusive order and “lowers” them downwards for fulfillment. The purpose of lower level management is to form the target values of indicative KPIs the way, so: on the one hand, their achievement will be directly connected and aimed to achieve the imperative KPIs target values; from the other hand, they could direct the resources (Human, Financial and others) to full-scale realization of strategic goals. At the same time, to maintain of integrity of the management system, the overall set of indicative and control KPIs needs to be determined for all chain of management beforehand. such managerial technique promotes realization of a principles of Management by objectives (МВО). MBO concept’s important statement is all levels of management hierarchy to be involved in process of achieving strategic goals, using the language of KPI as all – fits – one to organize well functioning cascading and both ways feedback (for example, orders <-> reports).
The map of the article
- Part 1: This part introduces the basic statements of KPI based management. Also it defines the term KPI;
- Part 2: BSC management system’s methodology;
- Part 3: Leading and Lagging indicators concept as an inherent part of KPI based management;
- Part 4: This part presents the basic criteria of what KPI to include in the map;
- Part 5: Cause and effect relations between KPIs;
- Part 6: The beginning of Cascading description: classification of indicators for management according to their importance
- Part 7: Conclusion of Cascading description: Indicative and Imperative KPIs
