Key Performance Indicators — Simply About KPIs
Key Performance Indicators, commonly referred to as KPIs, are measurable indicators of progress or success in any business activity. They represent either qualitative or quantitative characteristics of specific processes within a company. For instance, revenue in dollars, return on investment (ROI) in percentage, hours spent on tasks, the number of deals closed, and so on.
Why Do We Need KPIs?
KPIs serve as the glue that binds various aspects of a company’s operations, departments, and processes into a unified system aimed at achieving goals. These indicators are not randomly chosen; rather, they are “key” because only a subset of all the metrics in an organization directly influences the accomplishment of strategic objectives.
It’s the connection between these metrics and higher-level goals that makes KPIs a valuable system, not just something that consumes staff time with endless reports.
Building a KPI System
There are five fundamental components to constructing a KPI system within a company:
- Setting Strategic Goals: Begin by defining the company’s strategic goals, making sure they are specific, measurable figures such as +30% sales growth, 15% reduction in production costs, entry into four new markets, or the launch of a product line comprising four products. Goals should be achievable, ideally aiming for the upper end of what’s possible.
- Decomposition: Break down these strategic goals into smaller, more manageable pieces, further dividing them into specific tasks and indicators. This process results in the creation of actionable tasks.
- Establishing a Baseline: To accurately digitize tasks, you need a clear understanding of the current state of affairs. Measure and collect all necessary metrics to form an up-to-date picture.
- Digitization: Quantify every process with real numbers. Standardize qualitative metrics and convert them into digital data. For example, assess the quality of a phone call by creating a script, assigning scores to each script section, and then evaluating all calls digitally.
- Assigning Responsibilities: Identify individuals responsible for each task and metric. Ensure the collection of information is well-organized and motivate staff to voluntarily participate in the system (without necessarily offering financial incentives). The mere presence of defined goals and their measurement can boost motivation.
Data Collection System
The simpler it is to collect metrics, and the less “noise” data there is, the more effective your system will be for analysis. Each task and data collection should have a designated responsible person (with a backup in case of absence). The data collection system can be paper-based, maintained in separate spreadsheets, online, or managed using specialized software. The choice depends on your organization’s complexity and budget.
Analysis and Decision-Making
The ultimate goal of the KPI system is to achieve strategic objectives and enable sound managerial decisions by the organization’s leadership.
In conclusion, a KPI system provides the means to assess the efficiency of any department or process within a company. It helps identify strengths and weaknesses, allocate resources effectively, and attain desired goals.
