Measuring Contractors

Performance Using KPIs

GUIDANCE NOTES FOR FACILITIES MANAGERS

Published by the British Institute of Facilities Management

©BIFM November 2014
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Why measure performance?

Jonah Lomu once said “If you are not keeping score you are only practising.”

The purpose of this Guidance Note is to get you to start thinking about different ways to measure
and score contractors performance.

The main reasons for measuring performance are to:

> Learn and improve

> Report internally and externally
> Demonstrate compliance
> Provide information to help managers make better informed decisions
> Comply with external reporting regulations and information requests

Knowing how the contractor is performing is valuable information in its own right, but a good
measurement system will also help identify the triggers for any changes in performance.
These days performance measurement is often linked to service failure deductions in order to exact
some form of recompense for below standard performance or act as the baseline for gain share
mechanisms to reward over performance. The pro’s and con’s of these approaches will be the
subject of a separate Guidance Note.

What are Key Performance Indicators (KPIs)?

In the context of a service contract KPIs can be considered:

“Financial and non-financial measures of a contractors performance relative to the critical success
factors (CSFs) of the service.”

KPIs serve to reduce the complex nature of performance to a small number of key indicators in
order to make it more digestible. They should be designed to track progress and gain relevant
insights to help manage and improve performance. Decisions can be made much quicker when there
are accurate and visible measures to back them up.

A typical KPI should be SMART and have the following characteristics:

> Be aligned to service delivery goals

> Provide context
> Create meaning at all organisational levels
> Be based on clear measurable data
> Be easy to understand
> Lead to action

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In many contracts the KPI’s are decided by the client and the mechanisms and timescales for
reporting, reviewing, and agreeing them are included in the contract documents along with the
service default deduction process (if applicable), however it is not unusual for the client to ask the
contractor to submit proposals for agreement.

How many KPIs should I have?

Whilst there is a lot of debate about this, most opinion suggests that there should be between 5 and
8 KPIs relating to a service contract, supported by an appropriate number of Performance Measures
(PMs). Any more than this will create a work stream in its own right and the contractor will spend
more time managing the KPIs than they do managing the service!

What should I measure?

There is little that cannot be measured, but it must be realised that it does not make them key to
the contracts' success. Despite this some organisations take a scatter-gun approach and measure
everything, irrespective of whether it relates to a CSF (Critical Success Factor) or adds any value to
the management or delivery of the service. These sorts of organisations generally end up with
people scratching their heads and wondering what to do with all the performance data. Resist the
temptation to measure things simply because you can. You do not need to measure the irrelevant as
it is a waste of time and resources. The priority is to focus on quantifiable factors that are as
closely linked as possible to the service contract deliverables and those factors that define the
success of the service.

How do I decide what the Critical Success Factors are?

The concept of "success factors" was developed in order to identify the key service delivery criteria
that will decide whether it is to be regarded as successful or not. The term "critical" refers to the
chance of failure if the linked deliverables and standards are not met.

CSFs should not be confused with Key Performance Indicators (KPIs). CSFs are elements that are
vital for the service contract to be successful and KPIs are the measureable performance criteria
that determine how well the CSFs are being met.

It is possible, during the term of the contract, that you decide some of the CSFs (and KPIs) are not
quite right. It is therefore important to review them periodically and to define a process in the
contract documents for them to be reviewed and/or amended. Targets are good servants but very
bad masters and some of the CSFs and KPIs may need a bit of time to get right.
Examples of the sort of CSFs, KPIs and PMs (Performance Measures) that you may consider relevant
to a service contract are set out in Annex A but remember it is up to you to canvass stakeholders in
order to decide what defines success and how you measure it.

How do I measure the KPIs?

Generally the required delivery standards will be set out in the contract documents so for the

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service to be successful these standards must be met or exceeded. Again resist the temptation to
measure against every standard, you should concentrate on those that will make or break the
service if not adhered to.

“Best in
Class”

External Internal
benchmarks Benchmarks

Measurement
Methods

Industry
Experience
Standards

If there are limited and/or no clearly defined standards to measure against targets can be
established in many ways by using:

> “Best in Class” benchmarks using available data from other organisations recognised as
being leading edge
> External benchmarks obtained from readily available data and/or market intelligence from
within the industry
> Internal benchmarks comparing different business units or outlets within the same
organisation
> Where no other data exists, targets based upon the experience and knowledge of experts. It
is important when using this method that targets are robust but achievable and that in the
early days they are periodically reviewed and re-calibrated if necessary
> There are many industry and legislative standards that can be used for benchmarking
purposes, for example; Hygiene ratings for catering services from the local authority

However you arrive at the benchmarks ensure that they are SMART:

> Specific

> Measurable

> Achievable

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 > Realistic

> Time bound

When defining how high the bar should be set for red, green and amber thresholds discussed below,
it is rare to expect that the service provider will achieve 100% against the performance measures
you have set. It is not a perfect world and there will always be the odd failure.

Neither should you expect them to make a step change in performance straight away. If historic
achievement levels have been, say 65% the contractor is not likely to hit 90% in the first month of
delivery, so consider having a KPI stabilisation period of 3 to 6 months during which time service
delivery can be ramped up to meet the higher expectations.

You might decide to set the green/amber threshold at somewhere between 90% and 97% and the
amber/red threshold at somewhere between 80% and 85%, it is your decision but make sure the
targets are tough but achievable. Bear in mind though that there are likely to be a small number of
measures where nothing less than 100% achievement is acceptable, for example:

> Compliance and Legislative Requirements

> Some health and safety measures
> Security breaches in sensitive facilities
> Failure to attend to an emergency call out

How should the KPIs be presented?

It is usual for KPI results to be summarised on a regular basis (monthly or quarterly) using Balanced
Scorecards and for Dash Boards to be used to monitor real time performance. These reports are
often pulled together by the Helpdesk. The presentation of results can range from a simple excel
spreadsheet to a sophisticated bespoke software package, which generates different visual
presentations and reports. A commonly used presentation style is to distil the results into a “traffic
light” format with RAG (Red, Amber, Green) indicators to denote poor, moderate and good
performance, an example of a Balanced Scorecard is attached in Annex C.

Reviewing the KPI’s

As the contract evolves, things may change:

> Services may be added or removed
> Quality standards may change either by agreement or as a result of continuous improvement
> The relationship between the client and the contractor may mature
> There may be a desire to refocus on other areas of service delivery

To ensure that the KPIs continue to reflect the changes and remain meaningful it is important that
the contractor and client review them on a regular basis and if appropriate adjust them to meet the
new circumstances.

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Annex A – Typical CSFs, KPIs and PMs

Typical CSFs and KPIs in a service contract might include any of the following, depending on how critical they are to the successful delivery of services, the variety of
Performance Measures available to be used to measure KPIs can be extensive in some organisations so when spoilt for choice pick the ones that are most relevant to
you. Below are some examples of typical CSFs, KPIs and PMs.

Generally these fall into 4 areas:

> Time – delivery to programme

> Quality – of service delivery
> Cost – financial matters
> Safety, Health, Environment, and Security requirements

CSF KPI PM

The service must be consistently delivered to
high standards
The service delivery standards in the contract > Inspections
specification are being met or exceeded > Audits
> Complaints
> etc.
In a Total FM (TFM) contract there may be
several measures for each service line, but they
should only measure the key standards in the
contract specification

The service must be delivered at the times set Service delivery times, where stated, are being > Inspections
out in the service specification met or exceeded > Audits
> Mystery shopping (for services such as
Catering)

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The service shall ensure a safe and stimulating
environment for stakeholders
The service must achieve the response
requirements set out in the contract
The security integrity of the facilities are to be
maintained at all times
Contractors staff must be contactable,
responsive and sensitive to occupants needs
The cost of service delivery must remain
within the budget
The facilities must be statutory compliant at all
times
Customers must remain satisfied with the
service they receive
Health, safety and environmental standards are
regularly monitored, reviewed and maintained in
accordance with all legal and regulatory
requirements
No failure to meet the response times set out in
the contract
No breaches of the site security rules
No failure to be able to contact a senior member
of the contractors staff during the normal
working day
The contractor is working effectively with the
Employer to maintain costs at an acceptable
level
The contractor has a clear programme for
maintaining statutory compliance of the premises
and is meeting its requirements
Customers are satisfied with the service
> Accident Incidence Reports
> Number of reportable accidents
> Audit non-conformances
> HS & E reports
> Achievement of planned environmental
initiatives
> Helpdesk reports on responses achieved
> Security Incident Reports
> Employee notifications
> Client feedback
> Complaints
> Cost v Budget reports
> Cost of variations
> Measurement of innovation and
continuous improvement proposals
> Statutory compliance audits
> Failure reports
> Perception survey results
> Data from Service Quality questionnaires
> Data from the contractors Complaints
Management system
> Measurement of Customer take up (e.g.
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 No. of meals provided is maintained or
increasing)
> Data from mystery shopping
> Customer forums are consistently
recording high levels of satisfaction

The contractors people must be satisfied and The contractor has a clear retention and > Staff retention policy is being applied
motivated motivation policy and is adhering to it > Staff turnover below the industry norm
> No. of days lost through sickness
> User feedback

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Annex B – An example of CSFs, KPIs and PMs

CSF - Customers must remain satisfied with the service they receive
KPI – Customers are satisfied with the service
PM's - Perception Surveys etc

Perception Service Quality

Surveys Questionnaires

Customers Customer
Complaints
are satisfied Levels are
are Minimal
with the Maintained
& Managed
service

Mystery Customer
Shopping Forum
Feedback

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Annex C – Typical Balanced Scorecard using RAG Indicators

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This document was produced by the British Institute of Facilities Management (BIFM) alongside the
BIFM Procurement Special Interest Group (SIG).

BIFM would like to thank the Procurement SIG for their contribution in producing these guidance
notes.

Further information on the Procurement Special Interest Group (SIG) can be found at:

www.bifm.org.uk/procurement

About BIFM

The British Institute of Facilities Management (BIFM) is the professional body for facilities
management (FM). Founded in 1993, we promote excellence in facilities management for the
benefit of practitioners, the economy and society. Supporting and representing over 15,000
members around the world, both individual FM professionals and organisations, and thousands
more through qualifications and training. www.bifm.org.uk

For further information on BIFM, please visit

www.bifm.org.uk/about or email info@bifm.org.uk.
Alternatively, you can call +44(0)1279 712 620.

Twitter: @BIFM_UK

*While all due care is taken in writing and producing this guidance note, BIFM does not accept any liability for the accuracy
of the contents or any opinions expressed herein.

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