Key Performance Indicators

KPIs (Key performance indicators)

Definition: KPI are quantifiable measurements, agreed to beforehand, that reflec
t the critical success factors (of the company, department, project.)
Also Known As: Key Performance Indicators, Key Success Factors, KSI Examples: On
e of the Sales Department's KPIs is number of new customers and the goal for the
second quarter is 5 per salesperson.
A KPI defines itself, to a large extent, by its name; it is a performance indica
tor, i.e. the performance of the process it is measuring should be clearly indic
ated by the KPI. In fact, among all the tools available to executives to change
the organization and move it in a new direction, KPIs are perhaps the most power
ful.
KPIs focus employees' attention on the tasks and processes that executives deem
most critical to the success of the business. KPIs are like levers that executiv
es can pull to move the organization in new and different directions. Without KP
I an organization will not perform to its maximum.
There are two major types of KPIs: leading and lagging indicators. Leading indic
ators measure activities that have a significant effect on future performance, w
hereas lagging indicators, such as most financial KPIs, measure the output of pa
st activity. To do this, leading indicators either measure activity in its curre
nt state (i.e., number of sales meetings today) or in a future state (i.e., numb
er of sales meetings scheduled for the next two weeks), the latter being more po
werful because it gives individuals and their managers more time to influence th
e outcome.
Characteristics of a good KPI
KPI is always connected with the corporate goals.
A KPI is decided by the management.
It belongs to an individual who is accountable for its outcome.
They are leading indicators of performance desired by the organization.
Easy to understand
A KPI leads to action
Few in number
It should be balanced not undermine each other.
Users can gauge their progress overtime.
KPI s loses its value overtime so they must be periodically reviewed and refreshed
.
A KPI is associated with a specific process and is generally represented by a nu
meric value.
A KPI may have a target and allowable margins, or lower and upper limits, formin
g a range of performance that the process should achieve. A KPI can be thought o
f as a metric with a target.
An example of a simple KPI is: Average time for response to a customer inquiry i
s less than two days.
As more detailed example, say that an organization sets the following business o
bjectives:
*Orders must be processed within three days compared to the current average of f
ive days
*Average amount of an order must increase by 10%
*Average order amount KPI: For the Customer Order process, track the average amo
unt of each order
KPIs can be made up of one or more metrics. The calculated results of the metric
s during process monitoring are used to determine whether the target of the KPI
has been met. For example, tracking the average time to shipment might include t
he following metrics:
*Elapsed time for order completion
*Elapsed time for order approval
*Number of orders received
*Working duration of each task in the process
*Percentage of orders automatically approved