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Every business needs to understand its strategic strengths and pain points and will use Key Performance Indicators (KPI) to do this within a framework such as the Balanced Scorecard. But when managers need to review reports, they must rapidly and accurately evaluate whether KPIs are being achieved. This is where red, amber and green (RAG) reporting kicks in.

What is RAG reporting?

Red amber green reporting is essentially a traffic light system which tells you that ‘red’ statuses are an alert, ‘amber’ statuses signal caution and ‘green’ mean that everything is on track.

The system is simple and intuitive, and colours can be assigned to either fixed measures or threshold scores. The business first picks a KPI to measure from its scorecard – assigning a target and an owner. Sometimes a measure will evaluate a target and an actual figure. This provides context to the data being presented. A measurement threshold is then defined which will determine whether the report’s figures are assigned a red, amber or green colour for an instant visual assessment code.

The pros of the RAG system

When a business sets RAG thresholds for a KPI, they provide an immediate and impactful visual of that measure’s status. For example, a customer satisfaction KPI could be assigned a threshold level of 80% for a red score and a 95% threshold for a green score. So, any score above the 95% threshold would immediately show as green, and anything under the lower 80% threshold would immediately be flagged in red.

This example highlights the benefit of this system; its simplicity and immediacy. In a time-starved business world, managers often lack time to delve into sheets of numbers. But colours are intuitive and require no interpretation. Even the fastest glance at a RAG report can explain whether the business is on track, or whether it is falling behind on certain measures.

The cons of the RAG system

However, as with any system, caution needs to be applied. For example, if we revisit that same customer satisfaction score, we might see a green visual that represents a 97% score. It would be easy to mentally tick this KPI off as being on track, but it might be that one of the contributory measures – perhaps, customer service live chat response times – is actually lagging behind. And yet, the combined overall score would mean that the poor performance on this supporting measure would be missed. A manager would see ‘green for go’, and not realise that a segment of customers has experienced frustrations. The opportunity to investigate the issue and implement any necessary solution is missed.

In the same way, this same report might show a red score of 79% for customer service. This could kickstart a programme of remedial measures – at huge costs to time, resource and opportunity through diverted attention – which would later turn out to be an anomaly, perhaps caused by seasonal variance or extraordinary one-off measures, rather than a concerning trend.

Best practices

Although there are potential negatives to using the RAG system, we find it to be useful at Intrafocus – with the pros outweighing the cons. To maximise the value of the system, we recommend these best practices:

1. Set the right target thresholds

Set the right target threshold according to what you are measuring. For example, if your target measures something that is regularly repeated, highly predictable and critical to your business, it would make sense to set a tight parameter for your amber status; say 5%. An example of this could be response times in your contact centre. A 10% deviation might result in a red status.

However, there are instances where you might be looser in your parameters. For example, you might be working with small volumes (written complaints perhaps) or measuring a new activity which has no benchmark data attached; such as an internal sustainability measure. By loosening up your RAG measures, you can trigger amber scores – rather than launching straight into a Code Red situation when it isn’t really appropriate to do so.

2. Build up a scorecard

As we have said previously too, KPIs must never be analysed in isolation, so businesses must evaluate them as part of a holistic scorecard that shows a picture of the entire business and its strategic priorities.

3. Use RAG within a system

As mentioned previously, our highly experienced strategic consultants find that the RAG system provides value to many organisations. Similarly, we find that it works best as a tool to support KPI reporting, within the QuickScore system, which supports the Balanced Scorecard methodology of strategic management.

Find out more

Want to find out more about RAG reporting, KPIs or the Balanced Scorecard? Ready to take your business strategy forward? Contact our team to book your strategy workshop today and set yourself on the path to sustainable success.