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The right way to set performance goals KPIs and targets for employees

Editorial Team
01/03/2018 11:50 AM

[inlinetweet prefix="" tweeter="" suffix=""]Setting the right performance goals  for the organisation, department and individual employees is the starting point to proper performance assessments.[/inlinetweet] Never assign a performance rating to any employee without first agreeing on what needs to be achieved in terms of goals, key performance indicators and targets.
Before you start setting your performance targets, start by identifying the top priorities for your business, department and individual roles. This makes the process more focused instead of people hunting for goals just to make numbers.  These priorities must not be more than six in order to retain an element of focus.  The priorities must be derived from your business strategy. These can be written down or not, as long as there is consensus that these are the top priorities.
In the first column of your scorecard or goal setting template you must write “Goal”. The definition of a goal in this instance is a statement of intent. Under this column you are trying to answer; what do you/I want to achieve here?  Your response to this question forms the goal. Please note that the response must always start with a verb to show what action you are going to take. In practice I have seen goals starting with adjectives and nouns. Nouns and adjectives are descriptive and not action oriented.  Whoever looks at your goals should not be left in any doubt as to what you want to do.  An example of a goal could be “Grow customer base”. Most goals and objectives are not measureable because they are unnecessarily complicated. One of the common complicated goal I see often is e.g. “build a robust IT system”. This could be easily be simplified by saying “Increase core business systems uptime”.
Another challenge in setting performance goals arises when people focus on activity goals instead of outcome goals.  Let us look at one common example of an activity goal which can be easily changed to an output goal. One common one in banking and sales & marketing is “Visit 10 clients per week”. The key question here is why are you visiting clients?  Let’s now turn this activity based goal into an output based goal. The reason why you are visiting the clients could be to generate new business or retain your current clients by strengthening the relationship through the visits. So two goals emerge out of the visits; 1. Retain profitable clients and 2, Generate new business. These are two good goals that can be assigned performance indicators.
The next column is the Key Performance Indicator (KPI) column. This is sometimes referred to as “Measures” or Key Performance Measure in balanced scorecard terminology. Others prefer to call the same KPIs performance metrics. It is important to note that a goal can have more than one KPI depending on how broad it is.  Do not worry about the various terms used, what matters is an understanding of what all this is. [inlinetweet prefix="" tweeter="" suffix=""]Your KPI or Measure is that which you are going to be tracking to measure your success or failure on any particular goals. [/inlinetweet]It must be something that can be counted to provide quantifiable evidence of the magnitude of achievement. The evidence of success or failure should be easily observable by key stakeholders interested in the KPI.
Other key characteristics of the KPI are that it should be something that can be objectively assessed. Regardless of who gathers the evidence the quantity observed should be easily verifiable to come to the same conclusion in terms of its quantity.  The KPI must be something of value to the organisation. There is no point in tracking a KPI that has no value in the context of your targeted priorities.  The KPI must be within the control of the individual being assessed. I see a lot of people making a mistake here. Do not give someone a KPI that is outside their area of influence. It demoralises the employee before they even start working on the goal. It must represent a key output. Good KPIs allow you to compare or benchmark with others.
All KPIs should be tied to a goal/objectives (used interchangeably here as they mean exactly the same in the context of performance management and assessment). There is no point in assigning KPIs to people when there is no goal to achieve. No KPI should exist unless it is linked to goal. Let us go back to the goals we created at the beginning and assign KPIs to them.  The goal “Grow customer base” can have two KPIs namely; 1. Number of new customers, 2, Value of new business generated ($).  So how are we going to know we are growing our customer base; we are going to look at the number of new customers we are bringing on our books and the value of business being generated from the new customers. Make the goals and KPIs so clear that you never argue on whether these were the right goals and KPIs at the time of assessment. To enhance companywide understanding of your KPIs, once they have been agreed at company, department and individual role level you now need to define each KPI. This should cover definition, calculation, frequency (how often the KPI is reported on in your business), scope (covering what should be included and excluded), source (where is will get the data e.g. from the P & L), desired trend (do you want upward or downward trend?).
The next thing after agreeing on KPIs assigned to each goal is to agree on targets.  A target is the desired level of performance and it must be a number related to the assigned KPI for the goal. There are two types of targets you need in order to make performance assessment more value adding. Baseline Target is normal performance expected from an individual or business. It is the minimum acceptable performance. This can be derived from historical performance or other criteria acceptable in your organisation. You want to have this type of target so that if you decide to reward people you do not reward them for something you are already paying them to do. The other target is the Stretch Target – The best or maximum performance possible under the circumstances. Any performance above the baseline must be recognised as more value added.  In our example of the goal above “Generate new business” with the KPIs “number of new clients” and “value of new business” we could have the targets as: BT = 30, ST= 35, and BT = $1.5 million, ST = $2 million respectively. Please note that the difference between your stretch target and baseline target must be too big otherwise one of them will be wrong.  A difference of no more than 15% is reasonable.
The last column is the Target Period.  This is period within which target must be achieved e.g. daily, monthly, quarterly etc.
One last part of setting goals is to have initiatives to support the achievement of the goals. These are project related activities aimed at assisting you achieve your goals but they are not assessed in the performance assessment. They aid in the performance discussion but should not be used in coming up with a rating. Project related activities are normally not classified as goals but initiatives aimed at achieving a particular goal. Even with project related initiatives be careful not assess them through just being completed. Projects can be completed without meeting the goals for which they were started. Assess the success of a project based on outcomes not the number of activities completed.
The above process should result in a one page performance assessment template that has been automated in excel. For assessments to be credible and meaningful, each subordinate once they have agreed to the goals and targets, should be tasked with keeping their own evidence to support achievement of agreed targets. Let us say we now want to do a performance assessment for a quarter, the subordinate must input the actuals in the template and the template will automatically assign a rating based on what was achieved versus the set targets (both base and stretch). The role of the manager who is the assessor in this case, must be able to check that the subordinate has the evidence to support the actuals entered into the template.  Taking our example above, the subordinate must present a report on how many customer they have brought to the business including their names and value of business generated in the form of a report which the manager can verify.  For senior executives, we recommend that their performance assessments including the evidence advanced in support of achieved actuals must be subject to both external and internal audit. The reason is that such information informs important decisions in the organisation.
My question to you as you have finished reading this article is, is this how you have been setting your goals and targets?  If not we can further dialogue on this?
Memory Nguwi. Memory Nguwi is an Occupational Psychologist, Data Scientist, Speaker, & Managing Consultant- Industrial Psychology Consultants (Pvt) Ltd a management and human resources consulting firm. He is the president of the Zimbabwe Psychology Association. He hosts a radio program HR Perspective every Thursday at 1900hrs on Capitalk 100.4FM. https://www.linkedin.com/in/memorynguwi/ Phone 481946-48/481950/2900276/2900966  or email: mnguwi@ipcconsultants.com  or visit our website at www.ipcconsultants.com

Editorial Team

This article was written by one of the consultants at IPC

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