Topic

Pre-agreed Key Performance Indicator Tolerances

Response

As part of the overall operating model design to create self-organising and empowered teams, organisations are choosing to define pre-agreed performance tolerances for each Key Performance Indicator, which track the progress of their objectives and key results.

Enabling individual teams to assess their current performance against a set of pre-agreed performance tolerances between the scheduled business cycle (e.g. quarterly business review cycle), enables them to self-determine the best course of action , without requiring the intervention of others. Should the agile team discover their current performance falls outside the pre-agreed performance tolerances, then arrangements are made to follow a well-defined escalation process.

Definition Pre-assigned Performance Tolerances

Monetical recommend the documenting of any appropriate tolerances within the individual product backlog, in particular, the House of Quality. By creating a dedicated section within each Quarterly period teams can closely track their performance.

It is common practice to adopt a sliding scale tolerance profile. For example, 15% in Q1, 12.5% in Q2, 10% in Q3, 5% in Q4.

The sliding scale suggests team have an ever-decreasing window (i.e. reducing number of quarters, iterations or weeks) to course correct before the year end.

It is important that teams define both upper and lower tolerance levels for each of the Objectives and Key results:

Should a Team be significantly over performing (beyond tolerances), then it would be extremely valuable for it to decide whether the over performing team's resources are diverted (i.e. reassigned) to others that maybe over performing.
Alternatively, the organisation may choose to capitalise on the unexpected benefits being created.
Should a Team be significantly under performing (beyond tolerances), then it would be extremely valuable for it to decide whether the project should be cancelled or paused. Alternatively, team's resources are diverted (i.e. reassigned) from others that maybe over performing to help course correct.

The evaluation of a Team's performance against its pre-defined Objectives and Key Results, taking into account any existing tolerances, is typically undertaken on a monthly or quarterly basis.

Dovetailed with this performance assessments is an Escalation Process that addresses significant performance changes in real-time, which we shall cover in a future learning activity.

The attached House of Quality (Example) xls contains an example of the Tolerance details.

House of Quality (Example).xlsx

Each Business Outcome (Goal) and Key Result is shown as a row on the Performance table (see below). Where appropriate individual KPIs are created for each Key Result, explaining clearly the progress that should have been made by a Quarter end. Planned, Actual and Variation values are presented.

Discover more

Additional information, including working examples and templates are available in the Monetical knowledge base.