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How To Establish RAG Statuses For Your KPIs

Need to better understand (and set) your RAG statuses? This is the best place to start.

Consultant & Trader Joe's Loyalist

 

Understanding both your organization’s strong points and pain points is one of the most important strategy management steps a company can take—and key performance indicators (KPIs) allow you to do so. But combing through your reports and relying on a “gut feeling” to tell you whether or not your KPIs are on target isn’t a good plan. Rather, you need to be able to quickly and expertly evaluate whether your goals are being met without any emotion or error.

What does a RAG status mean?

In project management RAG—or red, amber, green—statuses act as a KPI traffic light: red is an alert, amber (or yellow) signals caution, and green means you’re in the clear.

Within this article, we’ll walk through how you can establish your RAG statuses and tolerances. We’ll also explore how to know if you need to revise those tolerances and what circumstances might call for this editing.

How do I get started with setting my RAG statuses?

You’ll have to determine what you’re measuring or evaluating first—which should be pulled from your scorecard. Following that, you’ll need to determine a measure owner and a KPI target.

You’ll also have to decide whether you’re going to evaluate more than one series in a measure. A series is a way of displaying information in a measure, like a “target” and an “actual.” Many organizations only evaluate their KPIs based on actuals, but some also look at the year-to-date actual or the end-of-year forecast.

Regardless of what you decide on, you need to think about whether your target will change from one quarter to the next or if it will stay the same. For example, if you’re examining changes in revenue with a goal of one million dollars in net profit, it may change drastically each quarter: $250,000 in quarter one, $500,000 in quarter two, and so on. On the flip side, you might be trying to keep the employee retention rate at 90%, which would not and should not shift over each quarter.

If you’re not sure how to get started with this process, don’t worry—we’ve created a step-by-step toolkit, which you can download for free. (You’ll find it at the end of this article.)

What should my tolerance range be?

It’s important to have a starting place for your tolerance ranges. This is a good place to begin:

  • Green: At or above your target.
  • Amber: Within 10% of your target.
  • Red: Less than 10% of your target.

But keep in mind that this is only a guideline. There are many situations where you will need to modify this to make your RAG statuses fit better in line with the KPI you’re measuring—which leads us to our next question.

Should my tolerances be more forgiving or more tightly controlled?

Your amber status might need to be tighter—perhaps within 3-5% of your target (instead of 10%)—in the following situations:

  1. If you are very familiar with the element you are measuring and your results are highly predictable. This may be the case for an activity that you repeat frequently, like answering the phone in your call center.
  1. If it is critical to act quickly when the measure goes off track. For instance, any safety, uptime, and call response time measures are going to need to have a tighter tolerance. This is critical to the vitality of your business, so being 10% off of something like safety should likely be indicated as red.

Your amber RAG statuses might need to be looser—perhaps within 20% of your target (instead of 10%)—for these reasons:

  1. If there’s not a lot of volume for the activity. Consider a situation where you are tracking renewal rates and you have a very small percentage of customers who are renewing. If your tolerance is set too tight, you might trigger a red status when it should be yellow.
  1. If you’re not as familiar with an activity. Let’s say you are integrating a new innovation at your company, or you’re trying to reduce waste and become more green. If you haven’t done something like this before, you’re probably not sure what to expect. In response, consider loosening your RAG statuses, so you don’t trigger red when you should still be amber.

Need more information?

As promised, we’ve created a template that will help you get through the nuts and bolts of setting your ranges, measures, targets, and goals. Download it below (it’s free!), so you can spend more time managing and less time analyzing. 

How To Establish RAG Statuses For Your KPIs
 

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