What is a KPIs?
KPIs- Commonly known as Key Performance Indicators, they measure how effectively a business achieves its key business goals. KPIs are used at multiple levels by organizations to assess their success in reaching their targets. Low-level KPIs may reflect processes within departments such as sales, marketing, HR, support, and others. An organization’s overall performance can be measured via high-level KPIs.
KPIs indicate progress toward achieving the intended result and are critical (key) indicators. With KPIs, you can create an analytical basis for decision-making, improve your strategic and operational performance, and focus your attention on the things that matter most.
By using KPIs, you can set targets (the level of performance you want) and monitor your progress against them. KPI management often involves focusing on improving leading indicators to get lagging benefits later. Those who use leading indicators indicate the organization will succeed in the future; others use lagging indicators to assess its past performance.
The relative business intelligence value of metrics can be greatly enhanced if organizations understand how specific measurements are used and how it contributes to a picture of how the organization is doing.
Key measurement indicators can be broken down into:
- An input measure is a number, type, and quality of resources used to produce an output.
- Process or activity measures – A method for measuring how efficiently, accurately, and consistently specific processes are used to produce specific outputs; they can also assess controls on those processes, such as tools and equipment or training.
- Outputs are result measures – They indicate the amount of work completed as well as the end product
- Outcomes are classified as Intermediate or End, such as customer brand awareness (e.g., a direct outcome of marketing efforts, communications, etc.) or sales (which may be a result of customer retention or increased brand awareness).
- Project measures – Provide status updates on deliverables and milestones for important projects and initiatives
In this section, we’ll cover how you can develop KPIs for your company, your team, or your direct reports. Remember, it’s not advisable to set top-down goals and KPIs as a direct means of control. If you are setting goals with your direct reports, they should be encouraged to take the initiative; you should aim to develop KPIs with them, not for them.
1. Establish a clear goal
The purpose of setting goals is to identify what you desire and why you desire it.
You should always keep in mind that setting goals occur within a larger hierarchy of goals. You should spend time understanding how the team or individual goals fit into the company’s overall strategy if you are setting goals at that level. It is important to be able to articulate how the strategic company goals are aligned with the company vision and mission.
If you set poor, non-specific goals for your strategic level, your colleagues will have a harder time setting strategic objectives.
2. Inform stakeholders about your KPIs
KPIs cannot be written and executed effectively if they aren’t communicated. How are your employees supposed to carry out your vision for the company if they don’t know what the goals are? It is important to share your KPI with your employees and other stakeholders, so they are able to understand where your organization is heading.
The other thing is to share your KPIs with stakeholder groups (another thing that is still largely ignored by organizations). The most important thing is to communicate with them immediately.
KPIs must be contextualized in order to be effective. To accomplish this, you must reveal not only what you measure, but also why. Without those figures, the numbers on the screen don’t have any meaning for you or your employees.
Employees should understand why they are measuring what they are measuring. Be prepared to discuss why one KPI was chosen over another. Last but not least? Listen carefully. Key performance indicators are far from perfect. Not everyone will understand what they mean. Employees can help you identify areas where the organization’s underlying goals aren’t fully communicated.
Suppose your company gets asked a lot why it doesn’t track its profits. This might lead your employees to think that your company does not disclose its profits clearly. Making money is the primary goal of any business. The revenue of your company might not always be the priority.
Furthermore, your employees might even be able to offer suggestions for improving your KPIs.
3. Identify KPIs and review them on a regular basis
Checking in on your KPIs is an important part of the development and maintenance process. Tracking your progress against a KPI is important (otherwise, what are the benefits of setting one?) but it is equally important to determine whether the KPI was successful.
It may not always be possible to achieve a KPI. There can also be goals that are unreachable. Business objectives sometimes fail to accomplish their underlying purpose. It is only by regularly monitoring your KPIs that you will know if they should be changed.
4. Make sure the KPIs are relevant
To make your KPIs meaningful, consider the following five steps before you begin:
- Business objectives need to be identified and reviewed
- Analyze the performance of a system
- Establish KPIs for short- and long-term objectives
- Review targets with your colleagues
- Adjust progress based on the reassessment
Despite having discussed most of this already, it’s worthwhile to emphasize the importance of setting short- and long-term goals. When you’ve set your goal and outlined a timeline (like your fiscal year, or the next few quarters), you can look backward and pinpoint your milestones.
If, for example, you would like to sign up 1000 readers for your blog posts and articles in the first quarter of the year. Setting monthly, biweekly, and even weekly targets will help you to accomplish these goals. This will enable you to evaluate your progress and make changes, if necessary so that you can achieve your long-term goals.
5. Align your KPIs with changing business needs
KPIs quickly become out of date if they are not updated regularly.
Consider, for example, the launch of a new product line or international expansion by your company. You will continue to chase targets until you update your KPIs, but the changes in tactical or strategic direction won’t be reflected.
When reviewing your results, you may observe that you have continued to perform well. Your KPIs may be failing to reflect your effort’s contribution to strategic goals if they do not accurately reflect their impact.
A monthly review of your KPIs (or, better yet, weekly) will give you the opportunity to change your strategy or adjust your tactics as necessary.
6. Re-evaluate KPIs to ensure they are attainable
It is crucial to achieving your team’s targets. It may be impossible to get your team to start if your goal is too high. If you set a low goal, you may wonder what to do after you’ve achieved your goals for the year a few months into it.
Analyzing your performance is crucial. Without a solid foundation, you will find yourself searching for numbers without foundation. To determine where you need to improve, you can also consider your current performance.
Take a look at the data you have already collected to establish a baseline for what you’ve achieved so far. Tracking revenue and gross margins can be done with many tools, including Google Analytics.
7. Refresh your KPI objectives on a regular basis
An objective KPI can never be static. It is constantly being updated, changed, and improved. Setting and forgetting your KPIs can lead to goals that don’t matter to your business.
Ensure you are regularly reviewing your KPIs, not only to see how you are doing against them but also to see if any of them need to be changed or removed.
Someone who has never developed KPIs before might find all this exhausting.
You’ll be able to do this process much more easily once you’ve done it a few times.
8. Last but not least
KPIs are important indicators of business success and can be used to make informed adjustments as needed.
Although they are useful, individual KPIs have limitations.
The usefulness of KPIs is dependent upon their usefulness. It’s OK to throw it away if it doesn’t serve your underlying business objective and start building new ones that do.
These are common KPI mistakes you shouldn’t make
Developing or using KPIs can be challenging, so avoid these mistakes.
Utilizing ineffective proxy measures
There are times when we cannot measure the thing we are trying to measure, so we determine a related KPI. This is called a proxy measure. In this case, we use a leading indicator instead of a lagging indicator when we want to track a lagging indicator, but it isn’t possible.
It is crucial to be cautious when using proxy measures because many of them are actually bad. It is not always the case that an increase in new leads to more sales. It is not always true that more social media followers will result in more positive brand sentiment. It is not always true that a reduction in average resolution time leads to increased customer satisfaction. Proxies should be used with caution.
Measuring actions not results
Instead of measuring activity, KPIs should measure performance. You’ll often see people writing their KPIs like this:
- 20 sales calls per day should be completed.
- Update our Facebook page 5 times
Performance is not discernible (or measured) with these KPIs. This type of target is sometimes called a quota.
Perhaps it would be better to write instead
- Profit from sales calls by generating $1000 today
- Engage with Facebook by posting content that receives 100 and above impressions or more
Performance may not be measurable by KPIs (e.g., because the only good indicator of performance would be an unknown lag indicator), so quotas might be the only way to track performance. To continually improve performance, you will have to make sure that these tactics are contributing to it, by means of a qualitative review.
A KPI that is invisible
Having KPIs that inspire action is crucial. In many ways, how visible you make a KPI is just as important as the KPI itself. As much visibility as possible should be given to KPIs. The KPI dashboard should be posted on the wall of your office. You should share information with your team automatically, and on a regular basis, if you work remotely.
It is also important to note that KPIs are forms of communication. Set KPIs to help you determine what is most important (and what is not so important).
By understanding KPIs, teams can better focus, prioritize, and generate new ideas spontaneously.
Regularly reviewing your KPIs should be a priority. Your current approach is being assessed to determine whether it is generating the progress you expect.
Action should be inspired by KPIs. You are losing opportunities for review, where you could have honed or changed your approach to KPIs if you only review them at the beginning and at the end of a project.
Performance can be measured at various strategic levels using KPIs. One set of KPIs may be chosen by a company to measure its performance overall. In addition, a different set of KPIs can be used to measure the performance of different functions in your company, including sales, marketing, finance, human resources, and operations.
Furthermore, KPIs can be used to measure an individual’s performance, a campaign’s results, a tool’s results, or even a machine’s performance.