The article below aims to clarify facts on ITIL concepts for the benefit of reader & the community
This write up is prompted by the need to clarify the difference between critical success factors (CSF) and Key performance indicators better known as KPIs. Despite the relevant focus on the topic and extensive information available, the difference between the two terms still confuses many people, leading to ambiguous & oft incorrect versions floating around in the common workplace.
The concept of critical success factors was developed sometime between 1979 & 1981 and over time refined by many notable researchers.
Critical Success factors, or CSFs are elements that are vital for a strategy to be successful or for an objective to be achieved. These are often used to denote the mission statements, vision of an organization, or simply for a business strategy. CSFs represent something that has to be in place for an objective/project to succeed. The achievement of CSF drives the strategy forward.
Key performance indicators or KPIs on the other hand are measures used to quantify management objectives, are accompanied with a target or threshold and enable measurement of performance. Another key term is measure of KPIs (threshold), which simply indicates the plotting of achievement against a definition, which may be either time based or denoted against numbers.
Simply put, a Key performance indicator is an indicator of performance, indicating whether performance is good or needs improvement, which is basically denoted by achieving the threshold tied to that KPI. KPIs indicate a defined performance level required to achieve a set of factor/s critical to the success of an objective. This indicates among others that KPIs are derived from CSFs.
If, for example, the critical success factor for an IT department is restoration of normal service, the KPIs that can flow from the CSF may include Average Handle time (AHT), % of time when resolution happens post 1st contact (First call resolution or FCR), average wait time (AWT) etc. Similarly, if the critical success factor for the collections department is to ensure high debt recovery, then the KPIs that flow are % collection against total outstanding, % collection in various ageing buckets etc.
Threshold indicates acceptable performance on a KPI, and adds definitive value to key performance indicator (KPI). For example, an “indicator” of the size of a table would be that it could fit a small pool table on it or large enough to seat six people. It is indicative of its size, but not a measure whether it meets the requirements or not, which is denoted by quantifying the size, for example a table with length 3 feet by 6 feet, which becomes the threshold for acceptance.
The whole purpose of KPIs is to identify certain metrics and define thresholds for those metrics that indicate levels of performance. These levels of performance are then used to indicate achievement of CSFs, which are also measurable, but typically only have binary values - yes and no. The whole point of a CSF is to be able to say, "Yes, that factor has been realized."
Some examples to better understand the difference are provided below
KPI = customer satisfaction (quantifiable, follows an approach to measure) + Threshold = > 70%
KPI = resolution score (quantifiable, follows an approach to measure) + Threshold = > 80%
KPI = net customers added (new customers less disconnections) + Threshold = 1,000 in 30 days
It’s important to note here that the definition of measurement unit may be different and adapted by the organization / department / industry differently, as well as include many dynamics.
In the examples above, customer satisfaction for a sample can be measured as a result of a “number rating” that the customer attaches to particular question/s in the survey form, or be calculated by averaging the rating customer attaches to each question, or be measured on a qualitative scale and then converted to numbers. Similarly, definition of case resolved may include measuring repeat contacts by the customer over a period of time post the first contact, 24 hours, 72 hours, 7 days etc exclusion of certain categories of customers, or simply measured differently using contacts by an individual customer’s telephone number rather than by cases logged by the service department.
Objective = I wish to drive from place A to place B in 5 hours
CSF = access to transportation, driving skills, affordability, availability of fuel, driving conditions
KPI = was the trip made in 5 hours
Threshold = 5 hours
Objective = Higher customer retention
CSF = efficient after sales service, quick turnaround time, less waiting time, transparency in bills etc.
KPI = customer satisfaction score > 70%, resolution score > 70%, Average Handle time < 10 minutes
Threshold = > 70%, < 10 minutes
Objective = Increase profitability
CSF = Higher sales, lower outstanding debt, lower costs
KPI = debt outstanding < 5%, Increase in sales > 10%, Average revenue per user > Rs. 1,000
Threshold = < 5%, > 10%, > Rs. 1,000Image courtesy: simpleprocesses.files.wordpress.com
KPIs on the other hand are measures used to quantify management objectives, are accompanied with a target or threshold and enable measurement of performance.