“It is not possible to manage what you cannot control and you cannot control what you cannot measure!”

(Peter Drucker)

Key Performance Indicators

Definition

Key performance indicators (KPI) are a set of quantifiable measures uses to gauge the performance over time. These metrics are used to determine a company's progress in achieving its strategic and operational goals, and also to compare a company's finances and performance against other businesses within its industry.

  • Performance measurement is a fundamental principle of management.
  • The measurement of performance is important because it identifies current performance gaps between current and desired performance and provides indication of progress towards closing the gaps.
  • Carefully selected key performance indicators identify precisely where to take action to improve performance.

What makes a KPI effective?

  • Powerful form of communications.
  • Demonstrate business data in easy to understand and clear way.
  • Make decisions more clear and based on data.
  • Help you to evaluate the success.
  • Give you a broad understanding of your business’s current position.
  • Show your progress towards key goals.

Always use SMART objective when thinking KPI

The letters are typically taken to stand for Specific, Measurable, Achievable, Relevant, Time-bound. In other words ask yourself these questions before start:

  • 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?

Also the KPI objectives must be DUMB: Doable. Understandable. Manageable. Beneficial.”

Types of KPIs

There are many types of KPIs that you can use . The common thread is that all of these are objectives and you should use the ones that make most sense for your business strategy. Types of KPIs include:

  • Quantitative indicators that can be presented with a number.
  • Qualitative indicators that can’t be presented as a number.
  • Leading indicators that can predict the outcome of a process
  • Lagging indicators that present the success or failure post hoc
  • Input indicators that measure the amount of resources consumed during the generation of the outcome
  • Process indicators that represent the efficiency or the productivity of the process
  • Output indicators that reflect the outcome or results of the process activities
  • Practical indicators that interface with existing company processes.
  • Directional indicators specifying whether or not an organization is getting better.
  • Actionable indicators are sufficiently in an organization’s control to effect change.
  • Financial indicators used in performance measurement and when looking at an operating index.

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 :

  1. Find a desired objective for the business.
  2. Dissect the steps you need to take to reach that goal. 
  3. List the data you need to monitor to track your progress towards that goal. 
  4. Keep your strategy on check: come back to and observe the evolution of each stream of data at a fixed frequency. 
  5. Focus on indicators/parameters that aid in improving results.
  6. Understand the required metrics to enable better learning.
  7. The KPIs need to be simple but be able to provide timely information.
  8. Should be correlated and aligned with the objectives of the company.