How to use KPIs

One of the most common exam questions in the ACCA's APM exam surrounds KPls. In my opinion the examiner believes that many performance management systems lag behind the environment in which the business operates or otherwise do not fit with the businesses mission or purpose (see a previous article in PQ magazine, August 2020).

This is why the examiner is keen that students can evaluate an existing KPI system against the businesses' objectives or the environment in which it is in.

Evaluation is a critical skill and without it, passing this exam will be difficult, so let's explore how to evaluate a KPI system:

The most common issues with an existing KPI system in the exam will often be:

• An objective for which there is no KPI. So a simple gap.

• A KPI that is in some way badly set (it is a number rather than a percentage for exam pie).

• The KPI that could be easily be manipulated by staff.

• The KPI is unrealistic or unachievable.

• The KPI is outside the control of the organisation or the individual made responsible for it.

A student could easily use the above as a checklist, but one must remember that the KPls are much more likely to be non-financial or non­traditional due to the nature of these organisations, so being able to think clearly in the exam will be important.

Equally, the SMART mnemonic is another excellent way of thinking about the suitability of KPls.

Objectives (extract)

To gain income from world class research

To deliver first-class education

To provide pastoral care to students

KPls (all)

1. Minimum 25% of professor hours spent on research

2. Degree classifications to be at least 70% at 2nd class or above

3. At least 80% of graduates to find jobs at the end of their course

How can we 'evaluate' this KPI system?

Approaches could vary but perhaps the best way forward here is to consider each mission statement in turn and then evaluate the related KPI?

To gain income from world class research:

The relevant KPI is number one above. However, there are issues here. While one would hope that spending time on research would be fruitful, the KPI simply demands that time is spent and there is no mention of income production for the university.

This could mean 'pet' projects are worked on rather than those more likely to be financially successful.

To deliver first-class education:

One has to consider what constitutes a first-class education. Both the second and third KPls above seem to be relevant. Degree results that are 'good' would seem to support the mission as stated. One wonders whether the target is sufficiently challenging or whether a target involving the proportion of first-class degrees might be more appropriate? Another problem with this KPI should occur to you. A typical university sets and marks its own exams and whilst the process may well be moderated one has to questions whether this KPI is too easily manipulated by generous marking?

Equally, one could argue that for a degree to have real value then a job should follow thereafter. In this sense the third KPI is at least relevant. However, would any job be okay? Perhaps the KPI lacks specificality and a graduate job should be specified?

To provide pastoral care to students:

This mission objective is not dealt with at all by the stated KPls. If and only if the examiner asked you to provide one, then you should do so. Perhaps having a KPI which targeted that access to care was offered within two days of a request would be appropriate?

Your evaluation needs to be balanced and see the positives and the negatives of the existing system. Typically, however, you should expect to find more negatives with an existing KPI system in the APM exam.

Virtually every APM exam contains questions on KPls, it is clearly the most common of exam questions. A student simply must be able to evaluate an existing system well.

(Article first published in June 2021 edition of PQ Magazine)

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