KPI 101

 

Key Performance Indicators are the measures that monitor the performance of key result areas of business activities, which are absolutely critical to the success and growth of the business. The development and use of the KPIs should form the basis for the analysis of an organization’s current performance, its future requirements and the improving strategies required for ongoing success.

 

Getting the most from your KPIs

The ultimately purpose of performance management being to drive future improvements in performance, there are two main ways you can use KPIs to achieve this kind of management power.       

The first is to use your KPIs to spot potential problems or opportunities. Remember, your KPIs tell you what's going on in the areas that determine your business performance. If the trends are moving in the wrong direction, you know you have problems to solve. Similarly, if the trends move consistently in your favour, you may have greater scope for growth than you had previously forecast. 

The second is to use your KPIs to set targets for departments and employees throughout your business that will deliver your strategic goals.

 

Principles

During the use and applications of KPIs certain principles should be taken in consideration:

• KPIs should not be an end in themselves, but be considered as an aid to management. They are a start to a proper informed debate that should lead to a plan for improvement.
• They should be seen within their local context and have more a meaning as a comparison over time than as a comparison between organisations.
• A set of performance indicators should be balanced. For example, measures of efficiency should be set against measures of effectiveness and measures of cost against quality and user perception.
• After being proposed and applied, KPIs should be reviewed and updated. The review determines the management utility of each indicator and the feasibility of getting source data for continuing use.
• The targeted performance description, which is described in measurable terms through the KPIs, must be deployed to the organisational level that has the authority and knowledge to take the necessary action.

Every initial proposal for KPIs is expected to be imperfect. However, it is important for the organisations to understand and apply the appropriate KPIs so that they can develop some experience in using them from which they can derive real expertise.