ITIL® v3 recommends Key Performance Indicators (KPIs) and metrics for measuring the effectiveness and efficiency of the ITIL processes. However, ITIL is not as prescriptive for measuring services. This article uses a fictitious case study as an example of how to apply the first three steps from ITIL v3’s 7-step Improvement Process to identify KPIs for a service. This case study was presented by Third Sky in a workshop in the September 2008 itSMF Fusion Conference – the largest annual IT Service Management conference in the United States.

Before discussing into the case study, let’s review why a business finds value in a service. There are two main elements to the value of a service: utility and warranty. Utility is whether the service is fit for purpose, i.e. does it improve performance or remove a constraint? Warranty is whether the service is fit for use, i.e. does the service have enough availability, capacity, continuity and security? A service must have both utility and warranty in order to create value.

In order to illustrate how to define KPIs for a service, let’s use a fictitious case study. The case study is based on a national consumer electronics and entertainment retail company. The company’s distribution costs are increasing because of rising fuel costs. To contain these costs, the company wants to optimize the number of shipments to their stores by implementing a Business Intelligence system to predict other inventory items that should be included in the shipment. This Business Intelligence system is dependant on real-time sales and inventory information from the stores.

Let’s use the first three steps in ITIL v3’s 7-step Improvement Process to identify the KPIs for measuring this new Business Intelligence service. After defining your vision, strategy, tactical goals and operational goals, the 7-steps in the process are:

1. Define what you should measure
2. Define what you can measure
3. Gather the data. Who? How? When? Integrity of data?
4. Process the data. Frequency? Format? System? Accuracy?
5. Analyze the data. Relations? Trends? According to Plan? Target met? Corrective action?
6. Present and use the information, assessment summary, action plans.
7. Implement corrective action.

Step 1: Define what you should measure

This is a brainstorming exercise to identify all possible measurements that align with the vision, strategy, tactical goals and operational goals of the service. The brainstorming occurs without regard to the effort, cost or technology limitations.

Consider the utility of the service, i.e. how effective is it in achieving its business purpose, KPIs that might be identified include:

• Number of additional products shipped based on predictions
• Number of shipments avoided
• Fuel cost savings
• Extra stock shipped but not sold

The last metric is interesting since it measures the negative side-effect of the service.

Now consider the Warranty of the service, example KPIs include:

• Availability of WAN
• Real-timeliness of data
• Query performance

Step 2: Define what you can measure

Based upon the capabilities and resources of the organization, the KPIs identified in Step 1 are evaluated.

• Number of additional products shipped based on predictions: Yes, after the Business Intelligence system presents its recommendation, we can record what action was taken.
• Number of shipments avoided: Maybe. You can compare the number of shipments this period with the number of shipments for the same period last year (to equate for seasonal variations). You will need to account for any new stores that were opened (or stores that were closed).
• Fuel cost savings: Maybe. Again, careful thought is required for this metric. You can compare the number of gallons of fuel used this period with the number of gallon use for the same period last year. You can then multiply the gallons saved with the current cost of fuel to
  
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