Key Performance Indicators (KPIs)

A Key Performance Indicator is a measurable value that is used to evaluate the performance of an organization against its business objectives. KPIs are critical indicators of progress toward an intended result. KPIs provide a focus for strategic and operational improvement, create an analytical basis for decision making, and help focus attention on what matters most. 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.

How to define a KPI?

Developing meaningful KPIs that tracks, and clearly visualize performance can be a tricky business and hence require some structured planning. Each KPI needs to address a specific business objective and provide timely, accurate information to assess progress towards goals. 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 the below guide step-by-step to develop a strong and meaningful KPI:

• Establish a clear objective: Describe a final objective that you want to achieve. If a goal of the business is to be the 'market leader', then a KPI objective may be to 'increase revenue by 10% this financial year' or 'Expand our product lines to 20'. State clearly, and in simple terms the purpose of the KPI. This provides guidance for anyone viewing the KPI to interpret the data in the correct context.
• Outline the criteria for success: What will the target be? Is it attainable? When should it be accomplished? and how will progress be monitored? Targets should be realistic, changes to business processes take time to implement. In the initial stages of KPI monitoring, it's best to focus on long-term targets with midterm monitoring.
• Collect the data: Investigate the availability and accuracy of the data. Data may be available automatically from existing systems or hidden in reports and databases. This data will all need to be pulled together at regular intervals for reporting in one central place.
• Build the KPI formula: Some KPIs contain but a single metric or measure. However, most rely on a combination brought together under a single calculated formula. For example, a KPI that measures productivity in revenue by machine would look like this: Total Revenue divided by the total number of machines. Build formulas and create calculations with test data to see if the results are what you would expect.

How to make a KPI actionable?

To make sure the KPI is actionable and impactful, these are some key points to follow:

• Review business objectives
• Analyze your current performance
• Set short and long term KPI targets
• Review targets with your team
• Review progress and readjust

Focusing on the need to develop targets for both the short- and long-term is important. Once you’ve set a goal with a timeline that’s farther into the future you can then work backward and identify the milestones you’ll need to hit on the way there.

Focusing on the need to develop targets for both the short- and long-term is important. Once you’ve set a goal with a timeline that’s farther into the future you can then work backward and identify the milestones you’ll need to hit on the way there.