Building kpis for budget planning division of finance accounting department at vietnam airlines

ĐẠI HỌC QUỐC GIA HÀ NỘI TRƯỜNG QUẢN TRỊ VÀ KINH DOANH --- NGUYỄN THỊ HẢI NGỌC BUILDING KPIs FOR BUDGET PLANNING DIVISION OF FINANCE & ACCOUNTING DEPARTMENT AT VIETNAM AIRLINES XÂY DỰ

ĐẠI HỌC QUỐC GIA HÀ NỘI TRƯỜNG QUẢN TRỊ VÀ KINH DOANH

-

NGUYỄN THỊ HẢI NGỌC

BUILDING KPIs FOR BUDGET PLANNING DIVISION

OF FINANCE & ACCOUNTING DEPARTMENT AT

VIETNAM AIRLINES

XÂY DỰNG KPIs CHO CHUYÊN VIÊN PHÒNG QUẢN LÝ NGÂN SÁCH - BAN TÀI CHÍNH KẾ TOÁN TỔNG CÔNG TY HÀNG KHÔNG VIỆT NAM

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

HÀ NỘI – 2022

ĐẠI HỌC QUỐC GIA HÀ NỘI TRƯỜNG QUẢN TRỊ VÀ KINH DOANH

-

NGUYỄN THỊ HẢI NGỌC

BUILDING KPIs FOR BUDGET PLANNING DIVISION

OF FINANCE & ACCOUNTING DEPARTMENT AT

VIETNAM AIRLINES

XÂY DỰNG KPIs CHO CHUYÊN VIÊN PHÒNG QUẢN LÝ NGÂN SÁCH - BAN TÀI CHÍNH KẾ TOÁN TỔNG CÔNG TY HÀNG KHÔNG VIỆT NAM

Chuyên ngành: Quản trị kinh doanh

Mã số: 8340101.01

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

NGƯỜI HƯỚNG DẪN KHOA HỌC: TS NGUYỄN XUÂN HUYNH

HÀ NỘI - 2022

DECLARATION

The author confirms that the research outcome in the thesis is the result of author’s independent work during study and research period and it is not yet published

in other’s research and article

The other’s research result and documentation (extraction, table, figure, formula, and other document) used in the thesis are cited properly and the permission (if required) is given

The author is responsible in front of the Thesis Assessment Committee, Hanoi School of Business and Management, and the laws for above-mentioned declaration

Date………

ACKNOWLEDGEMENT

Foremost, I would like to acknowledge and give my sincere thanks to my thesis advisor, PhD Nguyen Xuan Huynh for imparting his knowledge and expertise in my study Without his continuous support, guidance and constant supervision, I would not

be able to accomplish this project

Secondly, I would like to take this opportunity to give great thanks to all of my respected lecturers at HSB Thanks for the valuable knowledge and great advice you have wholeheartedly provided us during our studying time Besides, I wish to thank all

of HSB staff and my MBA15 classmates who have wonderfully supported and assisted

me in the last three years and until now It has been a great honour and privilege to undergo training at HSB

My thanks and appreciations also go to all of my colleagues in giving their

opinions to help me develop the project and my friends who have willingly helped me with their abilities I deeply hope that my project could be applied for real and give a hand on improving the work performance appraisal of my division

Last but not least, I would like to express my gratitude to my parents, my

husband and my daughter Your unfailing support, encouragement and inspiration were what sustained me this far Thank you from the bottom of my heart

TABLE OF CONTENTS

LIST OF ABBREVIATIONS i

LIST OF TABLES ii

LIST OF FIGURES iii

INTRODUCTION 1

1 Rationale 1

2 Literature review 3

3 Objects of research 5

4 Scope of research 5

5 Research methodology 5

6 Thesis structure 6

CHAPTER 1: THEORETICAL BACKGROUND 7

1.1 Performance Appraisals 7

1.2 Key performance indicator definition 9

1.3 Types of Key Performance Indicators 11

1.4 Criteria of KPIs 14

1.5 Principles for the use of KPIs 16

1.6 KPIs building process 17

CHAPTER 2: AN OVERVIEW OF BUDGET PLANNING DIVISION OF FINANCE AND ACCOUNTING DEPARTMENT, VNA 21

2.1 Vietnam Airlines 21

2.1.1 General introduction 21

2.1.2 Organization structure 22

2.1.3 VNA’s employees 25

2.2 Finance and Accounting Department 26

2.3 Budget Planning Division 29

CHAPTER 3: CURRENT SITUATION OF KPIs APPLICATION AT BUDGET PLANNING DIVISION, FAD AND VNA 31

3.1 VNA’s labor policies and KPIs implementation 31

3.1.1 General labor policies 31

3.1.2 KPIs implementation 33

3.2 Finance and Accounting Department’s KPIs implementation 42

3.3 Budget Planning Division’s KPIs implementation 45

CHAPTER 4: RESULTS, DISCUSSION AND RECOMMENDATIONS TO FULFILL THE KPIs SYSTEM FOR BUDGET PLANNING DIVISION 49

4.1 Research finding 49

4.2 Discussion 52

4.3 Building KPIs system 55

4.4 KPIs implementation roadmap 67

4.5 Some other recommendations 67

CONCLUSION, LIMITATION AND IMPLICATION 69

1 Conclusion 69

2 Limitations 69

3 Implications 70

REFERENCES 71

APPENDIX: MANHOUR TABLE 75

LIST OF ABBREVIATIONS

BOD Board of directors

CEO Chief executive officer

CPD Corporate planning and development department FAD Finance and Accounting Department

GAS General accounting system

KPIs Key performance indicators

KRIs Key result indicators

LIST OF TABLES

Table 2.1 Vietnam Airlines labor structure 25

Table 2.2 Plan of workforce productivity 26

Table 2.3 Finance and Accounting Department labor structure 27

Table 2.4 Finance and Accounting Department labor structure charts 28

Table 3.1 Example of building KPIs for a position 41

Table 3.2 Example of man-hour building 46

Table 4.1 Survey results 50

Table 4.2: SWOT analysis of current appraisal method 52

Table 4.3 Suggested KPIs for Budget Planning division 61

Table 4.4 KPIs implementation roadmap 67

LIST OF FIGURES

Figure 1.1 Four types of measurement indicators (David Parmenter, 2010) 10

Figure 1.2 KPIs in an organizational structure (Mind Tools Team) 11

Figure 1.3 The Balanced Scorecard Links Performance Measures 12

Figure 1.4 KPIs building process 18

Figure 2.2 Organization Structure of VNA 24

Figure 3.1 Decision no.554/QĐ-TCTHK-TCNL 34

Figure 3.2 Decision no.341/QD-TCTHK-KHPT 36

Figure 3.3 Document no 2982/HD-TCTHK-TCNL 37

Figure 3.4 KPIs system building process 38

Figure 3.5 Building process of position KPIs 39

Figure 3.6 KPIs/KRIs for FAD 43

Figure 3.7 FAD's general marking schemes and evaluation criteria 45

Figure 4.1 Response of the manager on current appraisal method 49

INTRODUCTION

1 Rationale

Aviation serves as a springboard for the tourism industry, attracting investment and trade According to the International Air Transport Association (IATA), each employee in the air transport sector can generate 24 jobs in supply chain industries such as tourism, hotels, restaurants, and entertainment while also contributing significantly to the economy's overall revenue

There are currently five airlines in Vietnam's market, including 2 FSCs (Vietnam Airlines and Bamboo Airways), 2 LCCs (Vietjet Air and Pacific Airlines) and the new airline Vietravel Airlines from the end of 2020 Since 2018, the industry's growth rate has slowed, as airlines have prioritised operational efficiency In 2020, the market was affected by the Covid-19 epidemic and will continue to be affected by the post-pandemic economic downturn In Vietnam, the Covid pandemic is under control, owing to the government's stringent control measures and popular consensus

As a result, prior the fourth outbreak of the pandemic, the domestic market is likely to recover to its pre-covid level of 2019 by 2021 through a series of domestic tourism stimulus programs Regarding the international situation, most of the countries are focusing on controlling the pandemic; IATA forecasts that the total international market of the year 2023 will recover equivalent to that of the year 2019 In the period

of 2021 - 2025, it is forecasted that the market will gradually recover after the epidemic is under control and the economy stabilizes IATA also forecasts that the growth rate of Vietnam's domestic market in the period of 2019 - 2025 will reach an average of 9.8% per year The number of international visitors to Vietnam will continue to grow at a high rate, of which Southeast Asian tourists will grow by 9.3%, and Northeast Asian tourists will grow by 5.2% on average

VNA is focusing on Product differentiation strategy, not on Price differentiation strategy as LCC Airlines However, on domestic routes, the difference in products between airlines is not clear The core point of products and services is the flight network and fleet, while the airlines operate the same routes with similar frequencies

and insignificantly different flight hours, and with narrow-body ships A320, A321 FSC serves light snacks, while customers can also purchase snacks on board LCCs FSC's seat step is longer than LCC's; however, customers hardly feel the difference when travelling on short flights, etc

On the other side, VNA not only competes commercially with rivals but also on labour resources As the aviation industry is an industry including many specific workforces such as pilots, flight attendants, aviation technicians…, there has always been widespread coverage of lacking workforce for the industry On Aviation Human resources report 2018, IATA reveals weaknesses in human resources management of critical functions including customer service, flight attendants and ground operation, and clearly defines that the greatest need for such careers is in the market of Asia-Pacific, Middle East and Africa – which are the top growth market following IATA forecast for 20 years IATA also emphasized that this study exclude pilots and maintenance personnel because they have already been known of the staffing shortfalls Moreover, VNA has to face the issue of brain drain on its workforce In VNA’s strategy for the period of 2020-2025, VNA has mentioned that there were more than 120 Vietnamese pilots who left VNA and worked for other airlines, and that is not

to mention foreign pilots and other workforces

To build and develop high-level human resources necessary for the enterprise's sustainable and uninterrupted growth and improvement of weaknesses, VNA must prioritise human resource development and resource management in order to mitigate the aforementioned negative situation

In light of that, it is necessary to create and manipulate a high-quantitative measurement tool to ensure that the evaluation of human resources is transparent, fair and effective All in one, KPIs is the most popular method implemented in many enterprises VNA requested all departments and units of the corporate to build KPIs for its own employees Until now, although the budget planning division of the finance

& accounting department has already built an appraisal method, it seems that the method itself was not really accepted and used frequently Thus, this thesis is going to

clarify the current situation of how the Budget Planning division implements the appraisal method, as well as to build the KPIs for this division

2 Literature review

Nowadays the performance measurement is a main keystone of management in companies (Weber et al.,2012) In light of that, there have been various theories, work papers and also education books on economy introduce and/or educate about KPIs KPIs was a part of Human Resources Management subject at university, college and graduate program Many study books have been used in those programs in Vietnam such as ―Human resources in enterprises‖ by PhD Nguyen Huu Than (2008);

―Business management skills‖ by Master Nguyen Tho Sinh (2010)

Performance measurement expert David Parmenter with the book ―Key performance indicators‖ has developed a clear set of steps that enable leaders to avoid pitfalls from applying KPIs and create KPIs that meaningfully reflect short and long term organizational performance In this book, the author presents KPIs from the basic

of KPIs definition, type of performance measures to the specification of how to implement KPIs, why KPIs do not work and how to establish KPIs, etc

Robert Pascal (2008) with the book ―How to manage performance‖, which has been translated and established in Vietnam, provides managers with effective skills to manage human resources by focusing on the objectives and encourage labor productivity; outlines valuable strategies and steps for the managers to improve the productivity of the enterprise In all methods provided, the author describes and analyzes in details about KPIs as an effective way to manage labor performance

There are many other papers, research on KPIs such as Kaganski, S.; Paavel, M.; Lavin, J (2014) on Selecting key performance indicators with support of enterprise analyze model; Anna Johnson on ―Performance Appraisals: the 5 biggest mistake managers make and How to avoid them‖; ―18 KPIs To Measure Performance (& How

To Choose & Track Them)‖ by Ted Jackson and so on

All of the study above analyzed and gave recommendations on KPIs in various aspects, many circumstances of application; laid out a deep and increasingly practical

basis for implementation in enterprises These documents are highly oriented for performance appraisals in real time

Particularly in the aviation industry, there is some research as follows:

Dedy Wiredja (2017), Queensland University of Technology, established a thesis

on Assessment of Airport Service Performance: A Passenger-centered Model In this thesis, the author aimed to apply for the role of passenger–centered indicators in measuring airport service performance A passenger-driven model was also developed

to assist airport management in achieving the following objectives: (i) measurement of the level of service, (ii) identification of any improvement within the airport service area, and (iii) the building of a customer-focused value of services

In May 2018, a student named M.van Iersel at Amsterdam University of Applied Sciences created a report on creating Key Performance Indicators for measuring the processes of the Ground Handlers This study digs into the current situation of the ground handlers operating at Schiphol Airport, point out the potential KPIs and benchmark the KPIs used to create an efficient overview of the ground handler process

Duarte Jorge Matos Cachola (2018) built a thesis on Performance and Efficiency evaluation of Air Cargo Carriers – case studies from Cargolux and Lufthansa Cargo This research identified the key performance areas and key performance indicators to evaluate the efficiency of the air cargo carriers, then created a database for these KPIs from case studies, and compared, analyzed the results between two case studies

In late 2018, Y Tran B A summited a thesis on ―Challenges the Airline industry faces at present‖ In this thesis, the author gave an overview of the airlines' industry in

2018 and the key factors that challenged the industry at that time determined six different issues including operational issue, competition issue, customer expectation issue, fuel price issue, legal framework issue, and rising air traffic issue After that, the author gave some recommendations for the airline industry to overcome the challenges ICAO - The International Civil Aviation Organization established an official guideline on airline KPIs, mostly on Safety and Flight Operation evaluation, including

departure punctuality, taxi-out additional time, rout extension, flight time variability, etc

There are some other articles that identified the KPIs in the aviation industry: In

2020, Benjamin Walther – CEO of Information Design, the one who had more than 15 years in the aviation industry, introduced 77 KPIs on Airline Operations In 2021, Joseph Vito DeLuca also published ―Revenue Management Metric & KPIs‖ – to introduce some of the KPIs used in aviation revenue management

3 Objects of research

The main research object is to study and develop a KPI selection model that is appropriate and suitable for the Budget Planning division employees The main activities (sub-objectives) of this thesis include:

- Overview of Performance Appraisals and Key performance indicators (KPIs);

- Study about current situation KPIs system of Budget Planning division; determine the strengths, weaknesses, opportunities, threats of this system

- Build a KPIs system for the division and give some recommendations to fulfill the KPI system of the division

4 Scope of research

About the research scope, this thesis focuses particularly on the Budget Planning division of the Finance and Accounting department at VNA The numbers, details are collected from 2020 until now, and the recommendation is for the next year of 2022 as this is a recommendation in need of testing and further developing

5 Research methodology

In regard to the research approach, this thesis will use both deductive and inductive approaches and will not use abductive research approach Deductive approach is used to outline the existing knowledge or theories about KPI, then research

on it to fill in the gaps; while inductive approach – also known as ―bottom up‖ research - is being used to describe the situation of how Budget Planning division implements KPIs, point out some mistakes or unsuitable steps that has been applied,

then based on the data and the fact observed, create hypotheses and conclusion by theories

The data used in this research include both primary and secondary collection Secondary data can be collected from various sources including IATA, aviation magazines or information, internal records of the organization, website On the other hand, primary data in this research would be collected from surveys by both closed-ended questions to calculate man-hour of different tasks in the division or assess the satisfaction of the employees and open-ended questions to understand employees’ opinions and aspirations as well as their contribution to fulfill the KPIs

6 Thesis structure

In addition to the introduction, the conclusion, the references, this thesis consists

of four chapters

Chapter 1: Theoretical background

This chapter provides the theoretical background of KPIs – the definition, classification, principle of using and process of building KPIs

Chapter 2: An overview of Budget Planning division of Finance and Accounting department, VNA

This chapter will introduce VNA, Finance and Accounting department and Budget planning division on its history, organizational structure, missions and main tasks, employee characteristics

Chapter 3: Current situation of KPIs implementation at VNA and specifically at Budget Planning division of Finance and Accounting Department

This chapter digs into a specific case of deploying KPIs - KPI system of Budget Planning division, Finance and Accounting department and VNA

Chapter 4: Results, discussion and recommendations to fulfil the KPIs system for the Budget Planning division

In this chapter, the author will provide the finding on the division’s appraisal method, build recommended KPIs and lists out some other recommendations for the division

CHAPTER 1: THEORETICAL BACKGROUND

1.1 Performance Appraisals

Definition of Performance Appraisals

Performance appraisal, also known as ―performance review‖, ―performance evaluation‖, or ―employee appraisal‖, is a systematic, general and periodic process that assesses an individual employee's job performance and productivity in relation to certain pre-established criteria and organizational objectives (Manasa, K & Reddy, N (2009)) Other aspects that could be considered are employees’ potential of development, strength and weakness, demands of the employees Performance appraisals are a part of human resources management in organizations

An immediate manager, such as line managers or front-line managers (Tyskbo, 2020), most often conducts performance appraisals Performance evaluation often includes both the core competencies required by the organization and the competencies specific to the job of the employees (Valamis)

The purpose of performance appraisals

From managers’ point of view, performance management systems are employed to manage and align all of an organization’s resources in order to achieve highest possible performance, and to eliminate distractions which may impact the organization’s goals (Waterman, Richard (1998)) The work performed in an organization may determine the success or failure of the organization Therefore, improving performance appraisal for everyone should be the highest priority of the organization‖ (Muczyk, J.P & Gable, M (1987, May))

Performance evaluation can literally give a review on how labors are working, and helps the enterprises in following tasks:

(i) Manage human resources: C&B, promotion, transfers, termination,

training, etc

(ii) Encourage employees when the appraisal is appropriate through reward

systems and promoting trust

(iii) Facilitation of communication: communication in organizations is

considered an essential function of worker motivation (Schraeder, M Becton, J., & Portis, R (2007, Spring))

(iv) Goal setting and desired performance reinforcement: organizations find it

efficient to match individual worker's goals and performance with organizational goals (Schraeder, M Becton, J., & Portis, R (2007, Spring))

(v) Identify how to improve working conditions that leads to work quality and

productivity increase

(vi) Recognize behavioral issues to prevent the effect of them

On the other side, to employees, performance appraisal helps in several ways as follow:

(i) Identify their own weakness or strength, their abilities for further growth

and development

(ii) Their contribution and achievement could be acknowledged and awarded; (iii) Identify and support their needs of training

(iv) Open discussion with their managers

(v) Motivate an employee and help them feel involved and invested in their

career development

Performance appraisals process

In a formal way, the process of performance appraisals should include:

- The manager (usually line manager), with the help of Human Resources Department, facilitate the assessment within their own division/department;

- Establish a method to implement the assessment;

- For each employee or each tasks, the required competencies and job expectation should be clarified in details

- Individual appraisals on employee performance are conducted

- A discussion about the appraisal, the future goal, and the career development should be proceeded between the manager and employees The best way is one by one meeting

- Sign performance appraisals by both the manager and the employees to archive the results These results should be sent to Human Resources Department as well

- The human resources department utilizes appraisal information for appropriate organizational purposes, such as reporting, promotions, bonuses

or succession planning

To collect PA data, there are three main methods: objective production, personnel, and judgmental evaluation Judgmental evaluations are the most commonly used with a large variety of evaluation methods (Muchinsky, P.M (2012))

1.2 Key performance indicator definition

A key performance indicator is known as a type of performance measurement Most scholars believe that among the matrix of all the Performance Measurements, which are defined as appraisals quantifiable metrics used to quantify the efficiency and/or effectiveness of an action, only those and a few in align with the strategic objectives of an organization and reflect the strategic value drivers rather than measuring non-critical activities and processes are defined as KPIs (Bauer, 2004a, 2004b; Eckerson, 2009a)

In the book ―Key Performance Indicators‖ 4th edition (Parmenter, 2010), Parmenter clarifies four types of measurement indicators for an organization as below

―1 Key result indicators (KRIs) give the board an overall summary of how the organization is performing

2 Result indicators (RIs) tell management how teams are combining to produce results

3 Performance indicators (PIs) tell management what teams are delivering

4 Key performance indicators (KPIs) tell management how the organization is performing 24/7, daily, or weekly in their critical success factors, and by taking action management is able to increase performance dramatically.‖ (Parmenter 2010)

Figure 1.1 Four types of measurement indicators (David Parmenter, 2010)

Paramenter defined KPIs as ―those indicators that focus on the aspects of organizational performance that are the most critical for the current and future success

of the organization‖

Another definition of KPI from the Klipfolio website is that ―A Key Performance Indicator is a measurable value that demonstrates how effectively a company is achieving key business objectives Organizations use KPIs at multiple levels to evaluate their success at reaching targets High-level KPIs may focus on the overall performance of the business, while low-level KPIs may focus on processes in departments such as sales, marketing, HR, support and others.‖

KPIs link organizational vision to individual action An ideal KPI system can link from top-level to bottom level We can visualize this as the organization is like the pyramid shown in Figure 2 below (Mind tools)

The pyramid goes from vision, feeding down to actions at the bottom level In the middle, KPIs are derived from the strategy, objectives, and Critical Success Factors (CSFs) of the organization

Factors are the areas that the organization must do to reach the vision, strategy and objectives required KPIs are for measuring those CSFs Actions put below KPIs are what the employees must perform to achieve the KPIs

Figure 1.2 KPIs in an organizational structure (Mind Tools Team)

Overall, KPIs are the type of performance measurement system, a tool to measure performance through data, ratios, quantitative indicators to reflect the performance of the organization, department/division, an individual or a particular activity (projects, programs and other initiatives) KPIs must include both critical indicators that reflect how the organization works and the ones that are important for the current and future goals of the organization

1.3 Types of Key Performance Indicators

Based on the KPIs’ purpose, one common method of classification is the

―balanced scorecard‖ from which the managers can define the business from four important perspectives that answer four basic questions (Figure 1.3 – The Balanced Scorecard links performance measures)

Figure 1.3 The Balanced Scorecard Links Performance Measures

(Robert S Kaplan and David P Norton, 1992)

 Customer perspective: KPIs that answers the question of ―How do customers see us‖ focus on interactions and their opinions on product performance and quality Customers tend to concern about four basic aspects: time, quality, performance & service, and cost (Robert S Kaplan and David P Norton, 1992) Lead-time measures the time required company to meet its customers’ needs; Quality measures the defect level of incoming products as perceived

by the customer Quality could also be in the form of how on time the

delivery is, how accurate the delivery forecasts are The combination of performance and service may calculate how the products or services create value for its customers The example KPIs may include customer satisfaction, brand awareness index of average handle time within a call centre

 Internal Business Perspective: KPIs that answer the question of ―What must

we excel at‖ focus on the efficiency of specific processes that have the greatest impact on the customer Companies should also identify and measure the core competencies, the critical technologies needed The example KPIs can be units produced per hour in a manufacturing plant or billable hours in a services company

 Innovation and Learning Perspective: KPIs that answer the question of ―Can

we continue to improve and create value‖ A company’s ability to innovate and improve ties directly to the value of that company That may be through the ability to develop new products or services, creating more value for customers, or improving the efficiencies of the operation in order for the company to penetrate new markets and improve its revenue and margins In other words, grow and, in that way, increase shareholder value Examples may be Time to develop next-generation, process time to maturity

 Financial Perspective: KPIs that answer the question of ―How do we look to shareholders‖ measure whether the company’s operation is contributing to the bottom-line improvement Financial goals usually focus on profitability, growth and shareholder value Examples may include day sales outstanding and current ratio

Other ways of categorizing KPIs included measurement-base, level-base, of-measurement-base

time-For measurement-base, all KPIs are based upon measurement There are two categories of measurement for KPIs: Quantitative or Qualitative

 Quantitative KPIs are defined with a specific value that is measured by a clear standard They are required not to include distortion, personal feelings, prejudices, or interpretations

 Qualitative ones, on the other hand, represent non-numeric conformance to the standard or defined by personal feelings, opinions and experiences

Another way to categorize KPIs is whether the KPIs are organizational or operational Organizational KPIs measure strategic, long-term goals connected to the organization’s mission or values, while operational KPIs measure in the short-term how the business performance about operational processes, tactical, and efficiency which can be applied to departments, divisions, individuals

KPIs may also separate into leading or lagging indicator This way of category may influence decision-making, especially regarding time issues Leading KPIs are predictive, they refer to possible future events or outcomes and could be used for planning purposes Lagging KPIs measure what has already happened They highlight patterns or trends over time and helps to determine if organizations need to rework their plans (Austin Caldwell, 2021)

1.4 Criteria of KPIs

When it comes to the standard of KPIs, we usually mention the theory of

―SMART KPIs‖ In which, ―SMART‖ stands for Specific, Measurable, Achievable, Relevant and Time-Bound

 Specific means that the indicator should be defined clear and intelligent in

order to ensure consistent collection and fair comparison The clearer the KPI, the easier it is for employees to know what they have to do and how to achieve the desired work performance

 Measurable means that a KPI must always measurable to a defined standard

Expected KPIs may include quantity, quality, cost and time to achieve

 Achievable: Clearly, one KPI should be attainable because KPIs essentially

create missions and goals for employees Goals – and the metrics that measure them – should be assigned so that the employees can make decisions, direct the efforts and follow up the progress A great strategy is to assign not only the

overarching goal but also those supporting it Nothing is more discouraging than striving for a goal that never be obtained

 Relevant: Indicators should be relevant to the organization KPIs’ value

expands further when the organization consider them in combination with other meaningful KPIs in a dashboard (The KPIs of each employee/ position need to be relevant to the KPIs of others, KPIs of each team should be applicable to others, etc.), making a complete view off a company’s core operations Only when tasks are related and cohesive, the organization could create exceptional value and performance One way to ensure the relevance is

to relate the KPIs to the strategic goals and objectives of the organization and the specific department/division

 Time-bound: Every task must have a timeline/ deadline Reasonable time

would help not only to achieve the goals but also to arrange reasonable time and recharge for other goals In case there is no deadline set, some situation may occurs such as (i) The employees completes KPIs late, which may affect others and the organization; (ii) The employees may not understand the determination to accomplish goals; or (iii) The employees may not aware of the KPIs’ urgency to allocate resources and time appropriately

In some cases, the ―SMART KPIs‖ may be described as ―SMARTER KPIs‖ In those cases, in addition to ―SMART‖ as mentioned above, KPIs must also be ―Explainable‖

as well as ―Relative‖

 Explainable: The KPIs should be easy to understand and use It is important

that the indicators are described in term that the user of the information (includes both employees and stakeholders) could understand even if the definition itself include technical terminology If a KPI is unexplainable, the organization may face the risk of misunderstanding

 Relative: The KPIs must be relative so that they are still available when the

business grows KPIs should be measured in percentage or other methods which avoid vanity metrics that may look unreality if the business is growing

or overly negative if the business turns down

1.5 Principles for the use of KPIs

If KPIs system is meaningful and connected, there will be an accurate picture of performance, the employees would be motivated and all members may strive for organizational goals However, if it is not, in which KPIs are meaningless and stressful, they can be counterproductive, and that leads to several problems that may destroy all the efforts While single KPIs can provide a useful snapshot at a specific time, KPIs systems are even more powerful when they are used in order to analyze the progress over long periods In light of that, during the application of KPIs, managers should consider these principles:

 KPIs must be considered as an aid to management In other words, we do not create and implement KPIs system to just leave the results there, not apply for any other process KPIs should lead to discussion and plan for improvement

 KPIs should have more meaning as a comparison over time than as a comparison between organizations

 A system of performance indicators should be defined to be balanced For example, measures of cost should be set against the measure of quality and customers satisfaction

 The KPIs system and the regulations/guides on the application of KPIs must

be internally communicated in the organization and deployed to the organizational level that has the authority and knowledge to take necessary actions

―It’s essential that everyone in your business is aware of what you’re trying to achieve and how you’re measuring progress towards those achievements This is especially important for those who are charged with ownership of the KPIs, but it is also important for people right across the business at any level KPIs should form part of the decision-making process for every employee, and everyone should be able to answer the question, ―How will what I am doing today affect our KPIs?‖

Therefore, it is neccessary to ensure everybody understands how the metrics are linked to strategic priorities This will increase ―buy-in‖ – how personally

involved, and enthusiastic your staff feel about your priorities – and ensure that constant review and improvement are at the heart of everything your people do If you simply tell everyone that they have to collect a whole heap

of extra data from now on without explaining why you are likely to end up with a very cynical and disengaged workforce!‖ (Bernard Marr, 2021)

 KPIs should be reviewed and re-evaluated frequently This is extremely important in order to ensure the continuous implementation of KPIs and the relevance of KPIs to the organization

If the KPI does not help the employee or the organization make better decisions in order to improve the business performance, then it is not useful Therefore, there is a need to constantly review the metrics in order to ensure the KPIs system is genuinely useful, and the organization is not wasting time

on measuring data (Bernard Marr, 2021)

1.6 KPIs building process

In order to implement and develop a meaningful KPIs system, every indicator needs to be qualified and meets all the criteria of good KPIs, as mentioned above in section 1.4 Therefore, creating successful KPIs turns to understanding the aspirations

of a professional structured process of building KPIs

There are many general processes developed worldwide, including 10-step from Bernard Marr – an influencer and leader in the fields of business and technology, 6-step from KPI.org, a strategy management group company In Vietnam national business universities/ schools, students have been introduced to a 4–step process to build KPIs included: (i) Identify the department/builder of KPIs; (ii) Identify the functions of the department; (iii) Identify the position and the main responsibilities of the position; (iv) Identify KPIs (assessment criteria) and collect data

All the guidelines, no matter how many steps they develop, are the same They are only different on the scope of each step This process below, I sum up from several guidelines, which also includes those mentioned above

Figure 1.4 KPIs building process

Source: Simple KPI.com

Step 1: Establish a clear objective

The KPIs system should always develop from the strategies of the organization/department or division Without a firm stake in what the organization is trying to achieve, it would be incredibly easy for the KPIs system to end up with a long list of indicators that could not identify whether they are useful or not (Bernard Marr, 2019)

Create a clear vision of what has to be accomplished Keep this objective simple and straightforward A great way to ensure that is to create a strategy in about one page This will help to define clearly the objectives and what should be put in place to achieve them

Step 2: Outline the criteria

When the objective(s) is defined, we need to identify the data that will be used for the KPIs and ensure its integrity We must also outline objective sources of information

Consider developing Key Performance Questions (KPQs), or questions that determine whether the organization has met the objective The answer to KPQs may give good information on useful KPIs Linking the KPIs to strategies will immediately sharpen the focus and make the relevant KPIs more obvious, and identifying the questions will further narrow the focus because questions give the context of the indicators

To be clear, a KPQ is a management question that captures exactly what managers need to know when it comes to each of their strategic objectives The rationale for KPQs is that they focus our attention on what actually needs to be discussed when we review performance, and most importantly, they provide guidance for collecting meaningful performance indicators (Bernard Marr, 2019)

While answering the questions, we could define the data in need to establish KPIs, metrics or processes Identify the criteria for success

In addition, the KPIs need to be rated in terms of importance so that all parties can decide to choose the KPIs to apply There is no right answer to the question of how many KPIs are needed, though there is wisdom that suggests ―less is more‖ A selective approach will help to keep the organization focused on clear goals (Austin Caldwell, 2021)

Step 3: Collect the data

Next step, we need to establish how data will be collected and how often it will

be updated Usually, most companies are full of data Data may be available automatically from existing systems or hidden in reports and databases The data should be collected at regular intervals for reporting

Acknowledge that we have the opportunity to access many supporting data, which is every bit as insightful and useful as traditional KPIs The data of our world, where information is being created every single minute, means that there will be a great source of supporting data potentially providing relevant information to our strategy (Bernard Marr,2 2019) Therefore, we also have to choose the right supporting data for building KPIs, the data that benefit our companies most, which may be based

on the company SWOTs (Strengths, Weaknesses, Opportunities and Threats)

Step 4: Build the KPI formula

Some KPIs contain a single metric or measure, but most rely on a combination, which is brought under a single calculated formula In this step, we work out how to access and measure the KPIs and the frequency of measuring KPI

Finding the right measurement methodology is critical Therefore, once the information that needs to collect is identified, we will need to find the right measurement methodology This is even more important in the situation that we have

to build new KPIs (Bernard Marr, 2019)

The KPIs formula should be built and create test calculations to check if the results are what the organization is looking for Ideally, the KPIs formula should be easy to understand and applied consistently

In addition, KPIs should be updated As mentioned above, information, data is being created and stored every minute In a company, as the business evolves, the KPIs should be revisited and adjusted to reflect changes They must be monitored regularly to guarantee that they are useful and appropriate

Step 5: Present KPIs

When it comes to KPIs, it could be said that presentation is everything Even the best planning, knowledge and methodology can render your hard efforts obsolete if the KPIs fail to communicate effectively Effective KPIs need to be translated into understandable visuals such as graphs and charts Effective visualizations clearly illustrate trends and variations in data and engage the reader Try to find the right picture for your KPIs and create an explanation of the insights so that the nuggets of wisdom extracted from the data are clear, unambiguous, accessible and, most importantly, actionable (Bernard Marr, 2021)

The above steps identify clearly how to create a KPIs system To give an overall picture of creating and implementing KPIs, we also need to pay attention to the principle when using KPIs clarified in section 1.5 above

The author will use this process presented above to build KPIs for employees of Budget Planning division, details as in Chapter 4

CHAPTER 2: AN OVERVIEW OF BUDGET PLANNING DIVISION OF

FINANCE AND ACCOUNTING DEPARTMENT, VNA

2.1 Vietnam Airlines

2.1.1 General introduction

Founded on 27 May 1995, Vietnam Airlines is the flag carrier of Vietnam and the major carrier in South East Asia, operating 94 routes to 22 domestic and 29 international destinations with an average of 400 flights per day, connecting the world’s major cities to mesmerizing travel destinations in Vietnam, Laos, Cambodia and Myanmar

Vietnam Airlines became a member of SkyTeam - a global airline alliance whose

19 members provide access to an extensive global network of 14.500 daily flights to 1150+ destinations in 175+ countries – in 2010, reaffirming the carrier’s position on the global aviation map In 2015, Vietnam Airlines became the first airline in the world to successfully operate both next-generation aircraft of Boeing 787-9 Dreamliner and Airbus A350-900 XWB

Vietnam Airlines has established itself as one of the region’s leading airlines thanks to its modern fleet and commitment to innovation and development, earning recognition from international and national communities through a series of prestigious awards Skytrax - the world’s leading airline and airport rating organization

- has ranked Vietnam Airlines as a 4-Star Airline for three consecutive years Vietnam Airlines was also named ―Asia Pacific Airline of the Year‖ by CAPA in 2017 and several awards from World Travel Awards, including ―World’s Leading Airline – Premium Economy Class‖ and ―World’s Leading Cultural Airline‖ (2017, 2018); Asia’s Leading Airline – Economy Class and Asia’s Leading Cultural Airline (2016) This achievement is the result of the carrier’s tireless dedication to providing the highest quality across a range of products and services

Vietnam Airlines has spearheaded Vietnam’s aviation market - one of the growing domestic markets in the world - throughout 20 years of development at a double-digit annual growth rate Positioning itself as a modern carrier with an

fastest-internationally recognizable brand characterized by Vietnamese traditional culture, Vietnam Airlines aims to achieve 5-star status and become a major airline in Asia (Published on Vietnam Airlines website)

2.1.2 Organization structure

a) Management and administration structure

- General meeting of shareholders;

- Board of supervisors;

- Board of directors;

- Chief executive officer;

- Executive vice presidents – Directors and Chief accountant

- Person in charge of administration - Secretary

- Assisting apparatus includes VNA’s Corporate Office and other departments b) Dependent branch

Including: Vietnam Air Service Company (Vasco); Flight crew 919; Flight Attendant Team; Heritage Magazine; Noi Bai Operating Center; Tan Son Nhat Operating Center; Center for Applied Research; Golden Lotus Center; Flight Training Center; VNA branches - North, Central and South regions branches with their sub-branches; VNA's branches and representative offices in foreign countries

c) Subsidiaries/ Associates

A total of 21 enterprises, including 4 single shareholder limited companies, 11 companies that VNA owned more than 51% of charter capital; 6 companies in which VNA owned less than 51% of charter capital

Details of VNA’s organizational structure as below:

Figure 2.2 Organization Structure of VNA

Source: Annual Report of VNA (2020)

2.1.3 VNA’s employees

The total number of employees of VNA as of June 30, 2021, is 5,979 people, with nearly 59% gaining a bachelor’s degree or higher education This number of employees includes labours who are temporarily suspending their labour contracts due

to the impact of Covid-19 The actual number of employees working as of June 30.2021 (full-time conversion) is 4,154, details as below:

Table 2.1 Vietnam Airlines labor structure

Category

31/12/2019 31/12/2020 30/06/2021 Number

of employees

Portion Number

of employees

Portion Number

of employees

By 2025, the total number of employees is planned to be 6,329 people, including 5,590 Vietnamese and 739 foreign works In which:

- Pilot workforce: VNA always identify pilots as an important resource of the company production VNA will continue to concentrate on developing this workforce

in order to gradually replace foreign pilots with Vietnamese pilots; annually 90-100 basic pilots will take part in the operation; implement training to upgrade main pilots, type rating to replace foreign pilots with the aim of increasing national pilot rate from 70% in the period of 2015 – 2020 to 85% in 2021 – 2025;

- Flight attendance workforce: maintain Chief Stewardess and Class C flight attendants as the core of the workforce, increase outsourced flight attendants to improve work efficiency;

- Indirect labor: maintain workforce at reasonable rate; strengthen training activities so that the employees may perform multitasks and help to increase labor flexibility; focus on developing managing level staffs

- The plan of workforce productivity is as follows:

Table 2.2 Plan of workforce productivity

2.2 Finance and Accounting Department

Based on Resolution No.139/QD-HDQT/TCTHK of VNA’s Board of Directors (BOD) dated April 13, 2015, Finance and Accounting Department has been

established with the function of advising and assisting BOD and CEO in the fields of finance, accounting, statistic and economic information It is one part of the assisting apparatus which is under direct control of BOD and CEO

Organizational structure of the department:

Finance and accounting departments is made up of 6 divisions: Finance; Management accounting; General accounting, Treasury, Revenue accounting and Budget planning Total number of staffs (includes Chief Finance Officer – Chief Accountant) is 109 people, details as below:

Table 2.3 Finance and Accounting Department labor structure

Divisions Total Female Male Communist

party members

Youth Union members

Source: FAD 2021 employees’ conference

On quota, the department is currently lack of employees, not to mention 30% of the employees who are temporarily suspending their labor contracts due to the impact

of Covid-19 This chart below will describe the organization structure of the department:

Table 2.4 Finance and Accounting Department labor structure charts

In the charts above, it’s clear to notice that the average age of the department is about 45, which is quite old That is due to the fact that Finance and Accounting is a field requires work experiences and the staff at that field is usually stable That is different from Commercial departments of VNA which requires youthful, dynamic and creative atmosphere I arise this comparison as for Budget Planning Division is the division that recently moved from Corporate planning and development department –

Division structure

Female Male Number of missing

a commercial department at VNA – to Finance and Accounting Department due to organizational restructuring

2.3 Budget Planning Division

In the Resolutions No.1981/QĐ-HDQT/TCTHK dated December 29, 2015 of the BOD on Corporate Planning and Development Department, Budget Planning division’s functions are assisting CPD director in building, synthesizing and reporting

on the implementation of VNA’s annual production and business plan; developing regulations related to VNA’s planning; and managing operation budget of VNA

The main tasks of the division are listed below:

- Be in charge of synthesizing, building, adjusting and reporting on the implementation of VNA’s annual production and business plan; create the draft of Direction of CEO on Building, Adjusting the plan; build the instruction to plan build; guide other departments/units on building and adjusting their own plans; supervise on the implementation of the plan;

- Contribute to build VNA’s strategy, mid-term plan; contribute to build production and business schemes; plan on establishing and re-organizing subsidiaries/ associated companies;

- Synthesize, build, supervise and report the BOD on economic and technical norms building and implementation; appraise and negotiate on the production and service price between parent company and subsidiaries/associated companies;

- Participate in appraising plan targets for the representatives of VNA’s equity

- Participate in project team, bidding expert team;

- Manage, provide settlements for CPD’s contracts; labor management; take administrative tasks of the departments;

- Other tasks as assigned by department managers

From 2018, although the division moved to Finance and Accounting Department, its main tasks are mostly unchanged, except for the task refers to contracts, labor management and administrative part of CPD On the other hand, Budget planning division received more tasks to meet the requirement of the organizational restructure:

- Develop a monthly report on budget management, include the budget using of VNA in total and every department/ unit in specific

- Manage and develop the planning management system, including all four sectors of Revenue-Cost, Budget, Purchase and Route Efficiency

To sum up, the main tasks of the division are annual planning, purchase expertise, and annual/monthly budget control These main tasks are divided into all employees of the division, each one is in charge of one field and/or some departments/units of the parent company There will be one person be in charge of VNA in general (to collect, analyze and summarize all data and information for company reports), and one person will manage the planning management system As stated in the organizational structure, VNA contains of six main fields with six different filed vice presidents (including Flight operation, Sales, Services, Technical, Safety, IT and external investments) and 49 departments/units (exclude subsidiaries and associates)

CHAPTER 3: CURRENT SITUATION OF KPIs APPLICATION AT BUDGET

PLANNING DIVISION, FAD AND VNA

3.1 VNA’s labor policies and KPIs implementation

3.1.1 General labor policies

One of VNA’s core values is its workforce Recruiting, training, building and retaining the resource of specialized employees and high-quality managers are extremely important tasks for VNA, especially in the context that many airlines enter the aviation market In this chapter, the author will describe the policies in two separated periods: before and after the Covid-19 pandemic, which has a serious impact

on the aviation industry

Before the pandemic occurs (2019 and earlier)

a) Compensation and benefit policy

In recent years, VNA has reformed wages many times for employees, especially for pilots, technicians, commercial employees and high-quality staff that are priorities The salary reform roadmap for pilots, flight attendants and ground employees aim to encourage the workforce, improve work efficiency, and increase their productivity and responsibility In particular, VNA implemented a new method of salary distribution: Reducing the proportion of fixed salary and increasing the proportion of effective/ productivity wage according to actual work performance, which can be based on flight hours, revenue, performance results and especially KPIs VNA has incentive policies for employees who completed high-score KPIs, gained qualified performance and showed responsibility

Regarding employee welfare, VNA has implemented a long-term welfare system and incentives to retain the workforce, including health insurance, voluntary retirement insurance, special tickets for employees and their relatives, public constructions, the regime of recruitment, which priority for employees’ children, etc

b) Recruitment policy

VNA deploys a variety of recruitment policies in accordance with each of resource type, which requires different characteristics and needs