Example of Indicators
- Nicolás Palombo (Unlicensed)
What follows is a simple example to describe the concepts involved in the elaboration of scorecards.
A company that sells bicycles in Argentina, Brazil and Uruguay needs to define a set of indicators that will enable it to obtain quantifiable data on the results of their operation. To simplify the example, we will work on a single defined strategic objective. The objective is to "Increase Sales" so an indicator to measure the amount of net sales in US Dollars is defined.
In order to do so, a goal in dollars is set for every country and the accepted deviation range or tolerance, within which the indicator will color itself yellow. It is obvious that Sales values are expected to exceed the set goals.
The following table shows the set values for the goal and tolerance for each country.
Country |
Goal |
Tolerance |
|---|---|---|
Argentina |
100.000 |
40.000 |
Brazil |
300.000 |
100.000 |
Uruguay |
30.000 |
15.000 |
According to the set objectives, the following table shows how to interpret the company's situation in view of the obtained sales values:
Country |
Good Situation |
Acceptable Situation |
Bad Situation |
|---|---|---|---|
Argentina |
Sales > 100.000 |
60.000 < Sales < 100.000 |
Sales < 60.000 |
Brazil |
Sales > 300.000 |
200.000 < Sales < 300.000 |
Sales < 200.000 |
Uruguay |
Sales > 30.000 |
15.000 < Sales < 30.000 |
Sales < 15.000 |
So we have seen that in order to define an indicator, we must specify the calculation method to express that the obtained values must be above the established goal, as in the case above. Another indicator to measure the "Reduce Production Costs" objective will certainly use the calculation method to express that the values (in this case, costs) must be below the established goal.
As you will see later on, to define the indicator that measures costs reduction, the calculation method to define is such that establishes that the goal is a maximum (or MAX), whereas for the case of the indicator to increase sales, the goal is a minimum (or MIN).
Getting back to the example above, in the case of the "Increase Sales" indicator, we can see that given that Sales goals are different for each country, it is important to obtain the value of the indicator detailed for each country. So the concept used to break down the goals is defined as "Sales Destination", thus a goal will be specified for each country.
The defined indicators can be classified or grouped according to a discretional criterion. Through the definition of hierarchies, it is possible to define the status of a group based on the status of the indicators or sub-groups it contains. This can be expressed through the concept of Aggregation Method, through which you can express, for instance, that the status of the group is obtained by measuring the status of each sub-group or indicator.
The Data sources used for the definition of the scorecards are O3 Cubes, and at least one dimension must be associated to the concept of analysis and one measure to the value of the indicator.
The status of each indicator is determined according to the values, goals, and tolerances defined for each of the elements of the concept that breaks down the indicator. In the example mentioned above, the status of the indicator is obtained through the sales, goals and tolerance set for each country.
The Scorecard Viewer colors the status of indicators according to the following values:
- Green: It means that the indicator reaches the set goal and as a consequence it reflects a good situation.
- Yellow: It means that although the indicator does not reach the set goal, it is within the accepted tolerance range, which constitutes a warning, but not a risk situation yet.
- Red: It means that the indicator does not reach the set goal, thus reflecting a bad situation.
O3 Scorecard Editor is used to define scorecards that are in turn analyzed with O3 Scorecard Viewer. Both components are accessible from O3 Browser.