Measure your performance against key
business objectives.
Key Performance Indicator (KPI)
Definition
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.
So what is the definition of KPI? What does KPI mean? What
does KPI stand for? Here are a couple other definitions:
- Oxford's Dictionary definition of KPI: A quantifiable measure used to evaluate the success of an organization, employee, etc. in meeting objectives for performance.
- Investopedia's definition of KPI: A set of quantifiable measures that a company uses to gauge its performance over time.
- Macmillan's Dictionary definition of KPI: A way of measuring the effectiveness of an organization and its progress towards achieving its goals.
Table of Contents for this KPI Guide
1. What makes a KPI effective?
Now that we know KPI stands for key performance indicator
it is only as valuable as the action it inspires. Too often, organizations
blindly adopt industry-recognized KPIs and then wonder why that KPI doesn't
reflect their own business and fails to affect any positive change. One of the
most important, but often overlooked, aspects of KPIs is that they are a form
of communication. As such, they abide by the same rules and best-practices as
any other form of communication. Succinct, clear and relevant information is
much more likely to be absorbed and acted upon.
In terms of developing a strategy for formulating KPIs, your
team should start with the basics and understand what your organizational
objectives are, how you plan on achieving them, and who can act on this
information. This should be an iterative process that involves feedback from
analysts, department heads and managers. As this fact finding mission unfolds,
you will gain a better understanding of which business processes need to be
measured with a KPI dashboard and with whom that information should be shared.
2. How to define a KPI
Defining key performance indicators can be tricky business.
The operative word in KPI is “key” because every KPI should related to a
specific business outcome with a performance measure. KPIs are often confused
with business metrics. Although often used in the same spirit, KPIs need to be
defined according to critical or core business objectives. Follow these steps
when defining a KPI:
- What is your desired outcome?
- Why does this outcome matter?
- How are you going to measure progress?
- How can you influence the outcome?
- Who is responsible for the business outcome?
- How will you know you’ve achieved your outcome?
- How often will you review progress towards the outcome?
As an example, let’s say your objective is to increase sales
revenue this year. You’re going to call this your Sales Growth KPI. Here’s how
you might define the KPI:
- To increase sales revenue by 20% this year
- Achieving this target will allow the business to become profitable
- Progress will be measured as an increase in revenue measured in dollars spent
- By hiring additional sales staff, by promoting existing customers to buy more product
- The Chief Sales Officer is responsible for this metric
- Revenue will have increased by 20% this year
- Will be reviewed on a monthly basis
3. What is a SMART KPI?
One way to evaluate the relevance of a performance indicator
is to use the
SMART criteria. The letters are typically taken to stand for Specific,
Measurable, Attainable, Relevant, Time-bound. In other
words:
- Is your objective Specific?
- Can you Measure progress towards that goal?
- Is the goal realistically Attainable?
- How Relevant is the goal to your organization?
- What is the Time-frame for achieving this goal?
4. Being even SMARTER about your
KPIs
The SMART criteria can also be expanded to be SMARTER with
the addition of evaluate and reevaluate. These two steps are
extremely important, as they ensure you continually assess your KPIs and their
relevance to your business. For example, if you've exceeded your revenue target
for the current year, you should determine if that's because you set your goal
too low or if that's attributable to some other factor.
KPI Planner Download
Download this simple PDF to start constructing your own KPIs, with our helpful and simple KPI Planner!
5. How to write and develop KPIs
When writing or developing a KPI, you need to consider how
that KPI relates to a specific business outcome or objective. KPIs need to be
customized to your business situation and should be developed to help you
achieve your goals. Follow these steps when writing a KPI:
Write a clear objective for your KPI
Writing a clear objective for your KPI is one of the most
important – if not THE most important – part of developing KPIs.
A KPI needs to be intimately connected with a key business
objective. Not just a business objective, or something that someone in your
organization might happen to think is important. It needs to be integral to the
organization’s success.
Otherwise you are aiming for a target that fails to address
a business outcome. That means that, at best, you’re working towards a goal
that has no impact for your organization. At worst, it will result in your
business wasting time, money and other resources that would have best been
directed elsewhere.
The key takeaway is this: KPIs need to be more than just
arbitrary numbers. They need to express something strategic about what your
organization is trying to do. You can (or should be able to) learn a lot about
a company’s business model just by looking at their KPIs.
Without writing out a clear objective, all of this will be
lost.
Share your KPI with stakeholders
Your KPI is useless if it doesn’t get communicated properly.
How are your employees – the people tasked with carrying out your vision for
the organization – supposed to follow through on your goals if they don’t know
what they are? Or perhaps worse: Not sharing your KPI risks alienating and
frustrating your employees and other stakeholders who are unable to see the
direction in which your organization is heading.
But sharing your KPIs with your stakeholders is one thing
(though even this is something that too many organizations fail to do). More
than that, though, they need to be communicated in the right away.
KPIs need context to be effective. This can only be
accomplished if you explain not just what you’re measuring, but why you’re
measuring it. Otherwise they are just numbers on a screen that have no meaning
to you or your employees.
Explain to your employees why you’re measuring what you’re
measuring. Answer questions about why you’ve decided on one KPI over another.
And most important of all? Listen. KPIs aren’t infallible. Nor will they
necessarily be obvious to all involved. Listening to your employees will help
you identify where your organization’s underlying goals aren’t being
communicated properly
Say you’re getting lots of questions about why profit isn’t
a KPI for your company. It’s a reasonable belief for your employees to have.
Making money is, after all, an essential part of what any business does. But
maybe revenue isn’t the be all and end all for your organization at a given
time. Maybe you’re looking to make major investments into research and
development or are on a major acquisition spree. Getting lots of questions like
this is a sign you need to do a better job of communicating your KPIs and the
strategic goals behind them.
And who knows: Your employees might even give you some ideas
on how to improve your KPIs.
Review the KPI on a weekly or
monthly basis
Checking in on your KPIs regularly is essential to their
maintenance and development. Obviously tracking your progress against the KPI
is important (what else would be the point of setting it in the first place?)
But equally essential is tracking your progress so you can assess how
successful you were in developing the KPI in the first place.
Not all
KPIs are successful. Some have objectives that are unachievable
(more on that below). Some fail to track the underlying business goal they were
supposed to achieve. Only by checking in regularly can you decide if it’s time
to change your KPIs.
Make sure the KPI is actionable
Making your KPIs
actionable is a five-step process:
1. Review business objectives
2. Analyze your current performance
3. Set short and long term KPI targets
4. Review targets with your team
5. Review progress and readjust
Most of this we’ve already gone over, but it’s worth
focusing on the need to develop targets for both the short- and long-term. Once
you’ve set a goal with a timeline that’s farther into the future (say the next
few quarters, or your fiscal year) you can then work backwards and identify the
milestones you’ll need to hit on the way there.
Let’s say, for example, you want to sign up 1,500 newsletter
subscribers in the first quarter of the year. You’ll want to set monthly,
bi-weekly or even weekly targets to get there. That way you’ll be able to
continually reassess and change course as needed on your way to achieving the
longer-term goal.
You could divide the targets up equally according to each
month. In this case that would be 500 subscriptions in January, 500 in February
and 500 in March. However you may want to get more specific. There are more
days in January and March than February, so maybe you want to set a target of
600 for those months. Or maybe you typically get more website traffic in
February (perhaps your business has a presence at a major trade show) so you
decide to set a target of 800 in that month.
Whatever it is, make sure you break up your KPI targets to
set short-term goals.
Evolve your KPI to fit the changing
needs of the business
KPIs that never get updated can quickly become obsolete.
Let’s say, for example, that your organization recently
started a new product line or expanded overseas. If you don’t update your KPIs,
your team will continue to chase targets that don’t necessarily capture the
change in tactical or strategic direction.
You may think, based on your results, that you are
continuing to perform at a high level. In reality, though, you may be tracking
KPIs that fail to capture the impact your efforts are having on underlying
strategic goals.
Reviewing your KPIs on a monthly (or, ideally, weekly) basis
will give you a chance to fine tune – or change course entirely.
You might even find new and possibly more efficient ways of
getting to the same destination.
Check to see that the KPI is
attainable
Setting achievable targets for your team is essential. A
target that’s too high risks your team giving up even before they start. Set a
target too low and you’ll quickly find yourself wondering what to do with
yourself once you’ve achieved your annual goals two months into the calendar
year.
An analysis of your current performance is essential.
Without this you’re left to search blindly for numbers that have no root in
reality. Your current performance is also a good starting place for deciding on
areas upon which you need to improve.
Start rooting around in the data you’ve already collected to
set a baseline for what you’ve accomplished in the past. Tools like Google
Analytics are great for this, but so are more traditional accounting tools that
track revenue and gross margin.
Update your KPI objectives as needed
KPIs aren’t static. They always need to evolve, update and
change as needed. If you’re setting and forgetting your KPIs, you risk chasing
objectives that are no longer relevant to your business.
Make a habit of regularly checking in not just to see how
you are performing against your KPIs, but on which KPIs need to be changed or
scrapped completely.
To someone who’s never developed a KPI before, all of this
might sound exhausting.
But here’s the good news: Once you’ve gone through this
process a few times, it’ll be that much easier to use it again in the future.
Bringing it all together
KPIs generally are an essential tool for measuring the
success of your business and making the adjustments required to make it
successful.
The usefulness of individual KPIs, though, have their
limits.
The most important part of any KPI is its utility. Once its
outlived its usefulness, you shouldn’t hesitate to toss it and get started on
new ones that better align with your underlying business objectives.
Get smarter about your data in daily
bite-sized emails.
“I loved the short straight-to-the-point
emails about KPIs and dashboards. I read all of them and I even kept some for
later. Loved all the examples.”
- Audrey Hardou, Strategic IT Procurement Manager, Air
Canada
6. Using KPIs as part of your
performance management frameworks
The most common elements between most performance
management frameworks are setting objectives, measuring performance, and
managing all related activities.
According to classic old adage, Goodhart's Law, "any
observed statistical regularity will tend to collapse once pressure is placed
upon it for control purposes."
Charles Goodhart was an economist in 1975 whose research was
used in helping criticize government decision making processes, specifically
with regards to monetary policy. This concept was then made mainstream by Marilyn Strathern, “when a measure becomes a
target, it ceases to be a good measure.”
A performance indicator or key performance indicator is just
one type of performance measurement. There are many performance management frameworks
that are both similar yet different. Each of these frameworks brings forward
elements that can be pulled together to help drive success backed by data.
Let's dig in.
Step 1: Aligning Business Strategy
A popular theme in startups these days is the One Metric That Matters (OMTM). The key takeaway
from this simple, yet extremely powerful tool is that you have to have a
thorough understanding of your business model in order to hone in on that
metrics and get the entire organization aligned.
Many will argue that sales is the most important metric when
it comes to measuring the success of a business. The challenge with this metric
is the measured outcome.
Ask yourself: What is the one metric that would help drive
more sales?
One answer to this question could be tracking the number of
customers who have integrated your product with 3 other applications. This
measure would be indicative of level of engagement, and their probability of
churning would likely be reduced.
The reason being that once customers are locked in, they
churn less which then creates the right unit economics for the company to grow.
So in this case instead of looking at sales numbers, we would only count a
customer if, and only if, they connected with 3 apps.
This is merely an example, and doesn’t mean that there is
only one metric you should care about! This framework helps with keeping
everyone focused on the one thing they should care about most.
Step 2: Cover all of your bases
With business comes trade offs.
You have probably heard the saying, "You can have
cheap, good, or fast. But you can only pick 2".
Let's
start with a classic framework that helps to navigate these trade offs. The Balanced Scorecard (BSC) helps you break down the
key areas of your business (perspectives) where activities need to be
monitored.
The four perspectives that need to be in balance are:
1. Financial Perspective
2. Customer Perspective
3. Internal Business Process
Perspective
4. Learning and Growth Perspective
These four key areas of your business are intertwined and
all must be aligned. When one is impacted, there is impact on another, in other
words, there will be a trade off.
Step 3: Putting your BSC strategy
framework into action with OKRs
The Balanced Scorecard (BSC) strategy suggests that for each
perspective you develop objectives, measures (KPIs), set targets (goals), and
initiatives (actions). A more recent framework that is getting popularized is
the OKR Framework. Popularized by its use at Google,
the OKR (objectives and key results) framework is used to define and track
objectives and their outcomes. Many would argue that this framework sits in
between a KPI strategy and the Balanced Scorecard approach.
OKRs are used as a performance tool that sets, communicates,
and monitors goals in an organization so that all employees are focused in the
same direction. The system encourages employee success through clear work
objectives and desired key results. The beauty of the system is that it
provides a simple, practical, and straightforward framework for defining,
tracking, and measuring goals, both as something to aspire to and as something
that can be measured.
Step 4: Monitoring with a KPI
Dashboard
A KPI dashboard provides you with an at-a-glance view of
your business performance in real-time so you can get a better picture on how
the entire organization is doing.
Common terms found in these frameworks that are worth
understanding include:
Key risk indicator (KRI): a measure used in management to
indicate how risky an activity is. Key risk indicators are metrics monitored by
organizations to provide an early warning of increasing risk exposures in
various areas of the business.
Critical success factor (CSF): is a management term for an
element that is necessary for an organization to achieve its mission. Critical
success factors should not be confused with success criteria. Success criteria
is most commonly used in project management to determine if the project was a
success or not. Success criteria are defined with the objectives and can be quantified
by using KPIs.
Performance metrics: measure an organization's behavior, activities, and
performance at the individual level and not organizational level. For example,
an individual who works in a call centre may have performance metrics such as
Number of Calls Answered, Average Wait Time, Number of Successful Calls
Processed, and Average Length of Call.
Creating good KPIs for your
organization is an iterative process.
10 criterion to consider when
designing key performance measures
Consider this list of criteria when building out your key
business performance measurement systems:
1. Be based on quantities that can be
influenced, or controlled, by the user alone or in cooperation with others
2. Be objective and not based on
opinion
3. Be derived from strategy and focus
on improvement
4. Be clearly defined and simple to
understand
5. Be relevant with an explicit purpose
6. Be consistent (in that they maintain
their significance as time goes by)
7. Be specific and relate to specific
goals/targets
8. Be precise – be exact about what is
being measured
9. Provide timely and accurate feedback
10. Reflect
the “business process” – i.e. both the supplier and customer should be involved
in the definition of the measure
Let's use Tesla as an example
Step 1:
Tesla's One Metric that Matters is number of new cars delivered per quarter.
This is a hot topic for investors to measure their success.
Step 2:
To build as many cars as possible, while still maintaining quality, Tesla needs
to balance their core assets from their balance scorecard.
Financially: They may make the decision that delivery of
cars is more important than profit in cars.
Customers: Customers have submitted their orders and are
waiting for their delivery, the longer it takes the less excited and more
likely they will cancel. So keeping customers happy is extremely important.
Step 3:
Now that we have set some objectives with KPIs we need to set key results
One KR for customers that is a standard measure in supply
chains could be: Deliver performance (DP) is set at 90% measured as the fulfillment
of a customer promised delivery date.
Step 4:
Using a KPI Dashboard to monitor key results
Dashboards often provide at-a-glance views of KPIs relevant
to a particular objective or business process.
7. Three ways KPIs can help build a
better team
There is a temptation in the business world to assume that
key performance indicators (KPIs) are the sole purview of “organizational
leaders”: CEOs, presidents, board members and other C-suite executives who make
important strategic decisions.
The reality couldn’t be further from the truth.
KPIs, the principle metrics that define strategic success
and act as a yardstick for areas that might need improvement, are an essential
tool for developing your team and achieving high-quality organization-wide
results.
They might even offer an innovative solution to the
intractable problem of employee engagement.
The problem with employee engagement
Employee engagement is something with which many
organizations are struggling. Just 33 per cent of workers in the United States
(and a measly 15 per cent worldwide) define themselves as being “involved in,
enthusiastic about and committed to their job and workplace” at work, according to Gallup.
This is profoundly impacting many businesses’ bottom lines.
To cite just one statistic: Organizations with a highly-engaged workforce see
an average 20 per cent increase in sales, Gallup
says.
1) Unlocking the power of employee
engagement
Employee engagement is one of the most elusive – and
misunderstood – concepts in the business world today.
Many executives are struggling to cope in a world where
employee expectations seem to soar by the day. Workers are more mobile than
ever before, moving between jobs at a pace that would have seemed impossible
only decades ago. In a world where the other side of the fence is as close as a
search on Glassdoor.com and articles about what workplace culture should be
proliferate on LinkedIn, it’s also more informed than ever.
Catered lunches or a foosball table in the break room might
be enough to cut it in some workplaces, but these are at best temporary fixes.
So how, then, can managers breathe life into a disengaged
workforce?
There is, of course, no one solution. But one area that
should be a bigger focus is informing employees about, and getting them
involved in developing, your organization’s purpose.
Connecting employees to your
organization’s purpose
There’s a story (which may or may not be true, but we’ll
leave that aside for the time being) that frequently makes the rounds on blog posts about
employee engagement. It relates to a visit John F. Kennedy made to NASA during
the 1960s. The president approached a man working at the facility to ask what
he did for a living.
“Mr. President,” the janitor replied, “I’m helping to put a
man on the moon.”
This response is frequently held up as the pinnacle of
employee engagement. What business owner, manager or director wouldn’t want
each and every one of their employees to feel this level of connectedness with
their organization’s purpose?
Part of this, of course, comes with defining your
organization’s mission. “Making money” isn’t enough. If you want an employee
who is truly engaged, you need to find the unique quality that should make your
employees want to get out of bed in the morning. (And no, “getting a paycheque”
isn’t going to cut it).
Once you’ve decided on it, you need to find a way to show
your employees how they connect to it.
That’s where KPIs come in.
Connecting employees to your
organization’s purpose
Ask any employee why they don’t feel engaged at work and
you’ll probably get some variation on the same theme.
- They feel disconnected from the organization’s larger purpose.
- They fail to see any impact their daily efforts – the activities which occupy most of their time – have on larger organizational goals.
- They don’t understand the strategic direction of the organization.
These are in some ways distinct problems. But in other ways
they all stem from the same issue: Poor communication, about strategy, between
management and lower-level employees.
KPIs help solve this problem.
KPIs are, by their very nature, strategic. Because they
differ from metrics, they help companies to really focus in on what’s
important. Not everything can be a KPI. KPIs force you to focus in on those
metrics that really underscore the end goals of your organization.
KPIs force an organization not just to measure how their
strategy is performing, but to
decide what their strategy is in the first place. They show
employees a lot about what actually matters to management in the first place.
For example: Profit for a charity would be unlikely to
qualify as a KPI. Why? Because a charity is a charity – it exists to achieve
some sort of larger impact beyond simply turning a quick buck. An organization
like that would be far more concerned with the amount they’re investing in
scientific research, maybe, or perhaps the number of laws they were able to
change.
Wouldn’t it be nice if your employees could see the end
goals towards which they are working?
2) The role of KPIs in employee
engagement
Here are the three main ways that adopting some KPIs can
help your organization build a better team.
They get everyone pulling in the
same direction
One problem with which team-builders perpetually struggle is
bringing together the disparate elements of an organization to focus on key
goals. Sales is worried about the minutiae of drawing in new clients and
converting them into customers. Your product development team is focused in on
the latest technology and trying to get it to market. Your human resources team
is concerned with filling any openings and keeping your workplace engaged.
Adopting some KPIs can help bring it all together.
By focusing in on the key metrics that really underscore
business success, you’ll be able to show your employees the role their work
plays beyond just what they do on behalf of their particular departments.
They help connect employees’ work to
organization-wide goals
KPIs are a great way to communicate strategy to your
employees. They help wade through the at-times messy, cryptic and ambiguous
world of tactics and connect them to the end goals of your organization.
Many of us have experienced this. We get so caught up in our
own little work bubbles, trying as hard as possible to ensure we stay on top of
our own specific set of tasks that we frequently fail to see why we’re doing it
in the first place.
Is it any wonder that frustration and, eventually,
disengagement sets in?
KPIs help cut through this muddle. They take a step back
from the chaotic world of tactics to identify the end goals towards which
everyone is working.
More effectively reach key goals
Micromanagement creates a lot of problems for employee
morale. But one of the worst is the brake it puts on employees’ creativity.
Say you’re a manager who’s in charge of the launch of a
major new product. That you want to make the product launch a success should be
self-evident. But there’s a big difference between telling your team about the
sales numbers you’d like to achieve and diving right into the nitty gritty of
what you want the website to look like, which marketing channels you’d like to
use and even when to send out social media posts.
Some managers might think they are just doing their job or
even being helpful with employees by offering their “suggestions”. In reality
what they’re doing is choking off their workforce’s creativity and likely
frustrating them to no end.
No one expects managers to stay completely hands off with
what their employees are doing. But the line between setting an end goal and
telling your employees how to get there is a fine one.
The advantage with setting KPIs is that they allow you to
set an expectation for what you want accomplished, while leaving the specifics
up to the creativity and ingenuity of your team.
3) How deciding on KPIs can take
your employee engagement to the next level
- It starts a debate about strategic direction: You’d be surprised about how few organizations actually articulate their strategic direction in a clear, codified manner. Instead employees – including some fairly senior managers – are left to read between the lines to discern their organization’s strategy. Make money? Sell widgets? “Make a difference”? Establishing KPIs helps start a discussion about strategy. It forces you (and your employees) to ask the question: “OK, what is it we’re ACTUALLY trying to do here?”
- It helps to establish how KPIs connect to strategic goals: Setting out a bunch of KPIs for your employees and saying “here, achieve these” isn’t good enough. Without context, KPIs are just a meaningless jumble of digits. Engaging in an exercise like this one will allow employees to not only know what the KPIs are, but to see how they connect to an organization’s end goals.
- It engages employees directly: People like to be listened to! If nothing else, taking the time to hear about what your employees to say will have inherent engagement benefits.
Get smarter about your data in daily
bite-sized emails.
“I loved the short straight-to-the-point
emails about KPIs and dashboards. I read all of them and I even kept some for
later. Loved all the examples.”
- Audrey Hardou, Strategic IT Procurement Manager, Air
Canada
8. Are KPIs still relevant?
KPIs often have a negative connotation associated with them.
Unfortunately, many business users are beginning to see KPI monitoring as an
obsolete practice. This is because KPIs fall victim to that most human of all
problems: lack of communication.
The truth is that KPIs are only as valuable as you make
them. Key performance indicators require time, effort and employee buy-in to
live up to their high expectations. Bernard Marr, best-selling author and
enterprise performance expert, sparked an interesting conversation on this
subject in his article, "What the heck is a KPI?" The comments make
it clear that while key performance indicators may have fallen out favour
(depending who you ask), their potential value remains in the hands of those
that use them.
So then why are key performance
indicators so important?
Setting key performance indicators for an organization
usually happens during the strategic planning phase, whether you do that
yearly, quarterly or even more frequently, the goal is to ensure the entire
organization is aligned towards the same objectives. Imagine a large row boat
with ten people, if 3 people think the boat is heading left, 5 people think the
boat is supposed to be heading right and 2 people think the boat is supposed to
turn around. What happens to the boat?
The boat will start spinning around. Therefore, ensuring
alignment from top of the organization all the way to the front line employees
is the difference between a boat moving forward in unison vs getting nowhere.
9. Key performance indicators in
action
Alright so now that you have defined
all your key performance indicators now what?
KPI Report
Whether you share a KPI report daily, weekly, monthly,
quarterly, annually or all of the above, setting up a good KPI
report platform is key to your success. At Klipfolio we monitor a
few KPIs but then track more deeply all the measures and activities that can
effect that KPI.
For example, if we track Monthly Recurring Revenue (MRR) we
know that # of quality leads, # of trials started, # of successful onboards and
many other measures will impact the success of MRR. So we track a daily number
of new leads created with an email report every morning at 8am. We have a
dashboard to track several key activities to ensure the product trial starts
are going smoothly in real-time and we track monthly the number of onboards
completed successfully by the customer success team.
KPI Dashboard
With KPI dashboards becoming more and more prevalent in
today's fast moving organizations such as SaaS and cloud-based businesses, they
usually represent a consuming format where an individual can review their data
in real-time whereas reports tend to be specific snapshots in a moment of time.
One of the most common uses cases of KPI dashboard
tools are in startups who share their core organizational
performance measures to get alignment from all the employees. When you walk
around their offices, TV's will be placed near specific teams highlighting the
results in real-time such as number of support tickets resolved today or number
of new wins.
So what about key business
performance measures?
If key performance indicators are your most important
objectives for your business, how do you align your organization to get there?
Performance measurement as defined by Wikipedia says "Performance measurement is the process of collecting,
analyzing and/or reporting information regarding the performance of an
individual, group, organization, system or component".
Therefore, business performance measures can be viewed as a
way to quantifying (i.e. measure) the effectiveness and efficiency of an action
or outcome that can align or impact your key performance indicators. Before
picking and defining a business performance measure, managers and leaders need
to know how to write them. There is a lot of great literature and research on
this topic including Andrew Neely from the University of Cambridge, who wrote
in designing performance measures you can leverage a
structured approach by going thru a list questions to consider as you build
your performance measurement system.
10. Top 15 Most common questions we
get on KPI's
What
does KPI stand for?
KPI stands for key performance indicator.
What
is a KPI?
A KPI is a measurable value that demonstrates how
effectively a company is achieving key business objectives.
What
is a KPI used for?
KPIs are used by individuals and organizations to evaluate
their success at reaching critical targets. High-level KPIs may focus on the
overall performance of the enterprise, while low-level KPIs may focus on
processes within departments.
How
do I develop KPIs?
We recommend the SMARTER approach.
SMARTER stands for
Specific,
Measurable,
Attainable,
Relevant,
Time-bound,
Evaluate
and
Reevaluate.
As you create an initial list of values that best
demonstrate progress toward key business objectives, ask yourself and/or your
team the following questions about them:
- Is your objective Specific?
- Can you Measure progress towards that goal?
- Is the goal realistically Attainable?
- How Relevant is the goal to your organization?
- What is the Time-frame for achieving this goal?
- How and when will you Evaluate short-term progress?
- How and when will you Reevaluate longer-term progress
Who
determines KPIs?
The short answer: anyone. KPIs are used by individuals, for
example, to pursue health-related goals, and they are used by organizations to
pursue business goals.
Within businesses, there are typically departmental KPIs
(such as those for marketing, sales and customer support, to name a few). These
KPIs are often established by the departmental leaders, and the departmental
managers then ensure the team is aligned and working accordingly.
Then there are the overarching KPIs, typically set by the
organization's CEO and executive team. The departmental KPIs should be created
in such a way that their sum result moves the needle for the overarching KPIs.
How
do I create a KPI?
Let's say your overall objective is to increase book sales
for this year. You’re going to call this KPI your Book Sales KPI. Here’s how you might define the KPI:
- What: To increase book sales by 15% this year.
- Why: Achieving this target will allow you to hire another agent.
- Measure: Progress will be measured as an increase in number of books sold and resulting revenue.
- How: Drive traffic through a blog focused on topics related to our publishing niche.
- Who: The Content Marketing Manager will be responsible for this KPI.
- Outcome: Book sales will have increased by 15% this year.
- When: KPI progress will be reviewed on a monthly basis.
Which
KPIs should I use?
There is no such thing as a "best KPI." There is
only the best KPI for your particular goals. Determine which goals are most
important to you, your team and/or your company, and run it through the SMARTER
questions in Question #4 above.
When
should I use a KPI?
Use a KPI when you need to track progress toward a goal over
time.
Why
should I review KPIs?
Goals may change over time, and performance and progress
toward those goals certainly will. As such, a KPI from three months ago may not
be quite as relevant. This is why it's important not to set and forget your
KPIs.
When
should I review KPIs?
KPIs should be reviewed at points relevant to the final time
you've set for achieving the goal. Using the example in #6 above, we
established that the goal should be achieved within one year's time.
Reviews, then, could be monthly if that's enough time to
measure progress.
How
do I report on KPIs?
A KPI report is a presentation that summarizes your current
performance compared to your objectives. It can be presented in a variety of
ways, from spreadsheets and slide decks to formal written reports and, as we
prefer, dashboards.
Traditionally, KPI reports are developed on a quarterly
basis. But, depending on how in-depth these reports are, you may want to create
a KPI report each time you conduct a KPI review.
How
many KPIs should I track?
In our experience, the fewer the better. It can be easy to
load up on too many KPIs, or to measure KPIs that aren't quite right for the
particular stage of your company. Research suggests that teams of 3-5 people
are most efficient; I personally think this range is also a good maximum # of
KPIs.
Why
are KPIs important?
The pursuit of goals depends on the focused, consistent
delivery of results. KPIs are important because they serve as the guideposts to
get you where you want to be.
Which
companies use KPIs?
All organizations, regardless of size and sector, that have
a goal in mind and that believe creating a strategy to reach those goals is
important.
What
is a KPI dashboard?
A KPI dashboard creates a real-time visualization (on
mobile, desktop or to a wall-mounted TV in your office) of the KPIs you've
selected. The best KPI dashboards are customizable, allowing you to, among
other things, change colors, organize your KPIs, and see your progress in a
single glance.
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