Critical Success factors Versus Key Performance Indicators

As part of any balanced score card strategy evaluation one needs to have both objectives to be fulfilled and measurements of performance.

Critical Success Factor
CSF is a term for an organisation or project to achieve its mission. For example, a CSF for a successful Information Technology (IT) project is user involvement. A company may use the critical success factor method as a means for identifying the important elements of their success.

They are those things which must go right for the organisation to achieve its mission.

The advantages of identifying CSFs are that they are simple to understand; they help focus attention on major concerns; they are easy to communicate to coworkers; they are easy to monitor; and they can be used in concert with strategic planning methodologies. Using critical success factors as an isolated event does not represent critical strategic thinking. But when used in conjunction with a planning process, identifying CSFs is extremely important because it keeps people focused.

Clarifying the priority order of CSFs, measuring results, and rewarding superior performance will improve the odds for long-term success as well.

Things that are measured get done more often than things that are not measured.

Each CSF should be measurable and associated with a target goal. You don't need exact measures to manage. Primary measures that should be listed include critical success levels (such as number of transactions per month) or, in cases where specific measurements are more difficult, general goals should be specified (such as moving up in an industry customer service survey).

Example of Critical Success factors for Company XYZ:

Critical Success Factor	Source of CSF	Primary Measures & Targets
1. Increase # of customers	Industry	95% customer retention rate; 15% new customers per yr
2. Instal PC-based customer service ...hot line	Strategy	90% of customer queries answered in 1 hour
3. Increase # customer service reps	Strategy	3 reps per 100 customers
4. Restructure capital structure	Environmental	Lower cost of capital by 2%
5. Raise employee morale and ...productivity	Temporal	Increase employee retention rate to 95% / yr.

When setting standards, raising standards often raises results (and the reverse is also true).

A critical success factor is not a key performance indicator or KPI. Critical Success Factors are elements that are vital for a strategy to be successful. KPIs are measures that quantify objectives and enable the measurement of strategic performance.

For example: KPI = number of new customers CSF = installation of a call centre for providing quotations

For example: Mission = "Increase Average Revenue per Customer from £10 to £15 by EOY 2008" CSF="Reduce costs per customer" KPI = 'Average Revenue Per Customer'

KPIs are typically tied to an organization's strategy (as exemplified through techniques such as the Balanced Scorecard).

Categorising the KPIs

Key Performance Indicators define a set of values used to measure against. These raw sets of values fed to systems to summarize information against are called indicators. Indicators identifiable as possible candidates for KPIs can be summarized into the following sub-categories:

• Quantitative indicators which can be presented as a number.
• Practical indicators that interface with existing company processes.
• Directional indicators specifying whether an organization is getting better or not.
• Actionable indicators are sufficiently in an organization's control to effect change.

How it works

For each CSF, Key Performance Indicators (KPI’s) are identified to measure progress in achieving the objectives.
For each KPI, targets and actions can be aligned and assigned to ensure activity is focused on delivering the objectives.
Initiatives can be identified which will enable the targets to be achieved.