KPI

KPIs and the Sierpinski Triangle

Most people don’t know it by name, but most recognize the unique design of the Sierpinski Triangle. The fractal is designed by recursively breaking down equilateral triangles into increasingly smaller triangles. Mathematicians have a field day with this type of object, but most people don’t equate it to any type of practical business visualization. As we talk about organizational KPIs, you will see that the Sierpinski Triangle is the perfect visualization of how we would like to create clear line of sight from department operational metrics to strategic KPIs.

What are KPIs?

KPIs (Key Performance Indicators) are defined well by Investopedia who define them as “a set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their strategic and operational goals.” For example, achieving a return on assets (ROA) of 70 basis points, 5% loan growth, or 3.5% share growth are all examples of KPIs that a credit union might define as their strategic metrics for the year.

KPIs are not designed to be tactical or operational in nature. Achieving an application to funding time of under thirty days for a new mortgage is more operational in nature and therefore wouldn’t be considered strategic enough to be an organizational KPI. That is not to say that the metric isn’t important – it simply is better suited as an operational, departmental metric.

The Relationship Between KPIs and Departmental Metrics

Departmental metrics are more operational in nature. In the last paragraph, we gave an example of reducing the average time to funding for mortgage applications. This would be a great example of an important metric for the mortgage lending department of a bank or credit union. A consumer lending department might be interested in the month-to-date origination volume as a departmental metric. These metrics, unless of the utmost importance to the strategic direction of the financial institution, are best suited to be measured and managed at the departmental/business unit level.

KPIs and departmental metrics should have a direct relationship. Let’s assume, for example, that return on assets (ROA) is a KPI for your financial institution. ROA is defined as the ratio between net operating income (net operating earnings) and average total assets. For those organizations with well-defined KPIs, this ratio is usually very closely monitored. The CFO, however, might care about average total assets and net operating earnings to date as two separate metrics for the finance business unit. The organization measures and manages to the ROA; the finance department might measure and manage the two individual metrics that comprise ROA.

KPIs and Sierpinski

What does the Sierpinski Triangle have to do with KPIs? Consider the outer triangle as the organizational KPIs. These KPIs encompass the entire bank/credit union and are integral to the organization’s strategic direction. Then consider the next level (the four next biggest triangles within the outer triangle) as the major business unit metrics. For example, in an organization with a COO, a CFO, a CLO, and a CTO, the four inner triangles would represent the metrics managed by each of those four C-level individuals. The next level of smaller triangles within the second level of triangles (or metrics in our analogy) might represent the departments managed by the C-level staff. For example, the CLO might have three departments under his or her guidance: consumer lending, mortgage lending, and commercial lending. These increasingly smaller triangles might represent the metrics for each of those departments.

So, the Sierpinski Triangle is the perfect representation of developing a clear line-of-sight between the departmental, operational metrics and the strategic KPIs. The loan originator should know how his or her daily work supports the strategic KPIs and goals set forth by the CEO. This line-of-sight and transparency that proliferates top-down throughout the organization is one of the greatest strengths of a successful data-driven organization.

Ask yourself this: Is there a clear line-of-sight between the daily activities from those in front-line operations and back-office administrative support roles to the KPIs and goals of the organization? Does branch staff understand how their day-to-day actions affect the overall growth of the bank or credit union? Defining and nurturing this line-of-sight is a major factor in the success of any business intelligence and analytics program. This also helps support the growth of a data-driven culture that is necessary for sustained success in the areas of analytics and BI.


For assistance in defining your organization’s data strategy or if you simply have questions about business intelligence and/or analytics, please contact Brewster Knowlton at brewster@knowlton-group.com or call 860-593-7842.

Posted in Banks, Credit Unions, DW/BI.

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