Key Performance Indicators (KPI’s) are a hot topic in the business world. Quickly Google the term “KPI” and your browser will come up with hundreds of articles on how to create, implement, and use KPI’s.
But what is a KPI and why do KPI’s matter?
A KPI is a measurement that allows you to track performance based on specific and agreed upon business goals. This means that KPI’s can help determine the health of your company and assist you in understanding how close you are to reaching your goals.
Recently, the newest ‘fad’ in the world of KPI’s is the idea of developing SMART KPI’s which is essentially a ‘best practice’ method of creating successful KPI’s. As information about KPI’s piles up and you get lost in the cluster of information there are a few things you need to know.
1. There are different types of KPI’s. So try asking a question.
Either this is a no brainer or you are totally confused. Either way, when setting your KPI’s it is extremely important to remember that there are different kinds of KPI’s. For example, KPI’s for a bank will be different than the KPI’s for an airport. Further, the KPI’s for the executive team will be different from the KPI’s for the safety department; and the safety department will have different KPI’s than the financial department.
Sometimes it can be hard to identify the KPI’s that are most important to your company or your department. One way you can face this problem is to start by asking questions you want answered. Key Performance Questions (KPQ’s), or questions geared towards company performance can help you identify the indicators that are most relevant to you.
With the various types of indicators, you can ask different KPQ’s to determine the right KPI.
Financial Indicators refer to the cost of running your business as well as the revenue your business brings in.
Are we on budget?
Are our sales on track?
Marketing and Communication Indicators refers to the how well your marketing strategy is working and how you communicate with your clients/customers.
Are we reaching our target market?
Are we delivering the message me think we are delivering?
Do customers understand what we are offering them?
Customer Indicators refer to everything surrounding customers.
Are our customers satisfied? What is our customer retention rate?
How many customers do you have?
Compliance Indicators refer to the required compliance measures for your company.
Are your safety procedures compliant?
Are your financial documents compliant?
The list goes on… Research & Development, Production, Quality, and even Technology….
While this is not a comprehensive list it gives you an idea of the breadth and depth of KPI’s and the KPQ’s you can ask to help you determine a ‘best fit’ KPI for your company or department.
2. You can use different types of data to measure your KPI’s.
Most everyone is familiar with structured data. This type of data includes the reports you receive from database management systems such as ERP and CRM Tools.
In addition to structured data, there is partially-structured data which comes from various files such as documents and spreadsheets. If thinking about excel makes you cringe inside, chances are that you are highly familiar with partially-structured data.
Then there is unstructured data which could include Facebook “likes”, emails, and other similar forms of information.
Depending on the KPI you can use one or all of these data forms to measure your performance.
Before you move forward and make any decisions about your KPI you also want to consider human data. Because humans on the ground sometimes know more than what the data can tell you, it is important to keep human based knowledge (human data) a part of the equation. Once you have gathered and evaluated all of the non-human data you can cross-check the information with your human knowledge.
The fact is, humans make decisions, not computers. Because humans are ultimately in charge it is essential that you combine various forms of data (INCLUDING HUMAN) in order to see the whole picture when evaluating the health of your company.
3. KPI’s can change!
There are different types of KPI’s and different ways to measure your KPI’s. You also need to keep in mind that KPI’s change.
How you set up your revenue and growth KPI when you first open your doors is probably going to be different one, two, three, or more years down the road. What you expected in growth rates has changed and thus your indicator should be adjusted as well.
Or, consider that your compliance measures may change as new technology alters the way your company completes audits. This means your KPI for compliance and your method of determining the health and success of your company has also changed.
Once you have set your KPI’s, figured out how to measure them, always remember to check if they are still relevant. Keep an open dialogue about changing KPI’s or adding new ones and you will be on track to successfully using KPI’s.
There is a lot of information available on KPI’s. You can find example KPI’s, reasons to use KPI’s, ways to measure KPI’s and various other discussions on KPI’s.
What is important to remember is that you can have the best KPI’s but it doesn’t really matter unless you use them appropriately. Choose the right KPI (because there are many), figure out how to measure them, use the information from the KPI’s to make informed decision and help your organization get things done, and continually monitor the KPI’s for necessary modifications.
In our next post we will talk about creating KPI’s!