Key Performance Indicator (KPI) is a quantifiable measure meant to evaluate the performance of an organization or employees over time for meeting a specific objective. Organizations deploy KPIs frequently to measure their progress and success towards achieving the key business objectives. There can be customer KPIs to monitor the new customers’ flow or financial KPIs to monitor profit or revenue targets, etc. Some of the examples of KPIs include growing revenue by 10% per quarter, improving Net Promoter Score (NPS), bringing down customer acquisition cost, etc.
KPI / Key Performance Indicator
Key Performance Indicators (KPIs) are important for the success of any business. When an organization sets up the right KPIs, it is in a better position to achieve the business objectives. In this article, we will have a comprehensive look at what is KPI, why it matters, and how to develop KPIs.
What is a Key Performance Indicator?
Key Performance Indicator (KPI) is a quantifiable measure meant to evaluate the performance of an organization or employees over time for meeting a specific objective. Organizations deploy KPIs frequently to measure their progress and success towards achieving the key business objectives. There can be customer KPIs to monitor the new customers’ flow or financial KPIs to monitor profit or revenue targets, etc.
A low-level KPI usually targets the departmental-level processes, such as HR, sales, marketing, etc. While a high-level KPI usually targets the overall business processes. Some of the examples of KPIs include growing revenue by 10% per quarter, improving Net Promoter Score (NPS), bringing down customer acquisition cost, etc.
Why Do KPIs Matter?
KPIs do matter because they are an effective way to ensure that business operations are headed in the right way to achieve the key business objectives or goals. Following are some of the main reasons that reflect why KPIs matter:
- Align Teams: KPIs give teams the bigger picture of what are the key goals of the organization, which make them move in the same direction.
- Health Check: From financial indicators to performance or risk factors, KPIs provide a clear glimpse of your organization’s overall health.
- Better Decision Making: KPIs give you a clear view of what processes are working for your organization and what areas you are lagging in. With such measures, you can make better decisions.
- Better Accountability: KPIs are an effective way to track employee performance and measure project success.
What is a good KPI?
A good KPI:
- Measures what it is meant to measure in order to better facilitate in right decision-making.
- Effectively monitors efficiency, resource utilization, project performance, quality, time management, behaviors, personnel performance, and similar other metrics.
- Shows proper quantifiable measure of progress towards achieving the targeted objectives.
- Provides a comparison that reflects the variation in performance with time.
- Is responsive to change.
How to Develop KPIs?
KPIs should be customized based on your organization targeted goals and performance objectives. KPI involves the word “key”, which means you have to only measure key indicators crucial to reaching the goals. Below are some important practices to follow for developing effective KPIs:
- Understand the Useability of KPIs: Before defining KPIs, do a discussion with the key personnel who are going to use the KPI report and understand what they want. This way, you can define KPIs that are resourceful to them.
- Support Main Business Goals: KPIs that do not support the main business goals are just a waste of time. Although KPIs can be designed to achieve specific objectives within a department, they should always be supporting the main business goals.
- Write Specific & Realistic KPIs: KPIs are “quantifiable measures”, so you should write such KPIs that are specific, time-bound, clear, realistic, and measurable. For example, “increase profits by 15% per quarter”, etc.
- Open to Changes: With the changes in business priorities or customer needs, your KPIs should also be flexible to changes. This requires a regular review of KPIs to ensure that they are still targeting the current business objectives.
In a nutshell, KPIs stands as a vital tool to measure the progress of a business and forecast the success towards achieving the key business objectives. Therefore, make KPIs a regular part of your business operational activities, but do not overload KPIs as well.