Balancing KPIs, Service Levels and Incentives in FM Performance Management

Performance Management within Facilities Management (FM) contracts can dramatically impact service quality, operational efficiency, and client satisfaction.

Understanding Service Levels and KPIs

At the core of effective performance management are service levels and KPIs. Service levels outline the expected standard of delivery, forming the foundation of your contractual expectations. KPIs, on the other hand, translate these expectations into measurable, actionable indicators.

A well-constructed performance mechanism typically consists of three parts:

A defined service level (SL) – e.g. "emergency calls answered within 30 seconds."

A KPI – e.g. "90% of emergency calls must meet the 30-second threshold."

A consequence of failure – e.g. a deduction or a performance discussion triggered if the KPI is not achieved.

The Royal Institution of Chartered Surveyors (RICS) recommends SLs be outcome-focused where possible. That said, input-based SLs (e.g. number of patrols per night) may still be appropriate in some contexts—especially where outputs are hard to measure objectively.

A common pitfall is KPI overload. Too many KPIs dilute focus, add administrative burden, and can confuse rather than clarify. The guidance is clear: target only what matters to the client’s core objectives and risk profile.

Typical FM KPIs: What Works and What Doesn’t

When constructing your KPIs, ensure they directly reflect your business objectives. Here's a snapshot of typical FM KPIs and insights into their effectiveness in performance management:

Effective KPIs include:

Response and Completion Times: Clear, measurable timelines for reactive maintenance.

Planned Preventative Maintenance (PPM) Compliance: Monitoring adherence to maintenance schedules.

Customer Satisfaction Ratings: Feedback from building users, tenants or stakeholders.

Safety and Compliance Metrics: Including near misses, incident rates, and statutory testing completion.

Less effective KPIs often involve:

Excessive micro-level activity tracking: These create noise without adding insight.

Subjective measures without baselines: Such as vague “cleanliness” ratings with no agreed standard.

100% targets for high-volume services: These are rarely realistic and encourage risk-loading in pricing.

How to Decide Between Including KPIs and/or Service Levels

KPIs and Service Levels are core tools for managing FM contract performance, but deciding when to use each—and whether to include service credits—depends on the nature of the service, its criticality, and your performance objectives.

Service Levels define the expected minimum standard of delivery. They are most useful when the outcome is binary and critical (e.g. emergency response within 30 minutes). SLs provide the baseline from which performance can be assessed.

KPIs measure how consistently and effectively those service levels are being achieved. They introduce accountability and trend insight, especially important for ongoing services or where continuous improvement is expected.

Service Credits introduce financial consequences when performance fails to meet agreed levels. These should be used selectively and only in areas where failure carries significant operational or reputational risk. RICS guidance emphasises that overly complex or punitive deductions can harm provider relationships and stifle improvement.

A practical approach to performance management is:

Use SLs to establish the standard.

Use KPIs to track compliance and support governance.

Apply service credits for failures that materially affect business outcomes.

They are deductions applied when performance against critical service levels falls short. Used sparingly, they reinforce expectations. Used indiscriminately, they become a source of conflict.

According to RICS best practice, performance deductions should only be linked to failures that matter, especially where the cost of underperformance outweighs the administrative burden of resolution. Overly punitive arrangements can create tension and stifle innovation.

A helpful rule of thumb: KPIs tell you how well the service is performing; service credits tell you what happens if it fails.

Service Credits and KPIs: A Balanced Approach

The best FM contracts use both KPIs and service credits carefully, based on real business priorities rather than standard templates. Aim for a system that encourages good performance, not one that simply punishes failure. The key is proportionality, relevance, and the ability to adjust over time.

A balanced performance mechanism should:

Be clearly defined and agreed upon during procurement.

Ensure flexibility to ensure they can be reviewed and adjusted during contract life.

Focus on areas that support business performance, critical service delivery, statutory compliance, and user satisfaction.

Avoid being overly complex or unreasonably punitive.

How Landmark and Associates Can Help

At Landmark and Associates, we specialise in crafting FM procurement strategies that improve performance and value. Our team helps define clear, practical KPIs, develop fair service credit mechanisms, and ensure your FM arrangements deliver outcomes that matter to your organisation.

We understand what good looks like in performance management, and just as importantly, we know what to avoid. From setting up robust measurement frameworks to ensuring contracts are workable, we can help you build arrangements that promote service quality and drive continuous improvement.

Contact us to discuss your FM requirements.