What is KPI?

KPIs (Key Performance Indicators) are a set of quantifiable measures used in organizations for measuring performance over time. These metrics are used to determine organization progress in operational goals. The Key Performance Indicator is also used to compare a company’s finances and performance against other businesses in the same industry.

Learn more about Unique Sales Key Performance Indicators that Boost Business Growth.

What is KPI

KPI examples

Since there are so many examples of Key Performance Indicators through different categories, PNMsoft – a Genpact company wrote that most KPIs fall into one of the following four categories:

  • Revenue improvement
  • Process cycle-time improvement
  • Cost reduction
  • Increased customer satisfaction

What Is a SMART Key Performance Indicator?

S.M.A.R.T is an acronym that is extremely important to keep in mind when determining if your KPI is going to be successful.

These S.M.A.R.T. factors are incredibly useful when it comes to setting goals. So, when you create a KPI, you should be able to ask and answer the following S.M.A.R.T. questions:

  • Specific: Is your KPI specific?
  • Measurable: Can you easily measure the progress?
  • Attainable: Is the goal realistic for you to obtain this measure?
  • Realistic: Is the goal relevant to organization?
  • Timely: What is the time frame for achieving this goal?
Smart key performance indicator

Picture 1. SMART key performance indicator

6 Things That Make KPI Effective

We have defined KPIs and SMART KPIs, let’s see what makes it so effective in business.

When they are simple

First, you need to ask yourself questions such as how easy is a key performance indicator to understand for both customers and employees? Then, how easy is it to measure it? Both customers and employees should be able to understand how the KPI is calculated and how to easily measure it. The simpler, the better.

When they are measurable

KPIs need to be clear and measurable so employees could easily analyze their performance. According to Ted Jackson from ClearPoint Strategy, “a good KPI should act as a compass, helping you and your team understand whether you’re taking the right path toward your strategic goals.”

When they are achievable

One of the biggest employee de-motivators is setting “unachievable goals”. KPIs must be set so employees could reach it without having to face difficulties. The more realistic the goal of a key performance indicator is, the more likely employees are to reach it. So, instead of setting big and unattainable goals, start with small ones for the beginning.

When they are actionable

Employees should know how to take action to influence a KPI. A good KPI encourages decisions and leads to action in a business. To make this possible, you should be able to monitor KPI  grounding occurrences. If you see that something cannot be improved, then there is no point in measuring it.

When KPI is timely

KPIs results should be reported frequently enough so that employees can make timely decisions. On the other side, results shouldn’t be reported too frequently because then employees will be overwhelmed with data. But, before making a decision on how often should they report, first, they need to define how urgent or costly it is actually measuring KPI.

When KPI is visible

Lastly, visibility across the entire organization is crucial. Growth is achieved more easily when all employees are engaged and aware of the organization’s goals. Making Key Performance Indicators visible throughout an organization communicates to employees how their work affects the general goals of the organization. And that leads to employee productivity and encourages them to work harder.

How to define a KPI?

Defining key performance indicators can be a difficult thing to do. The word in KPI is “key” because every Key Performance Indicator should be related to a specific industry outcome with a performance measure. Sometimes, Key Performance Indicators are confused with business metrics. KPI is often used in the same spirit, but it needs to be defined according to the crucial business objectives.

Here are steps for useful defined KPIs:

  • What is the outcome you desire?
  • How will you measure your progress?
  • How can you influence the outcome?
  • Why does this outcome matter for?
  • Who is responsible for your business for the defined outcome?
  • How will you know you are achieving your outcome?
As an example, let’s say your objective is to increase organic traffic in Q1 this year. You’re going to call this your Organic Traffic Key Performance Indicators. Here’s how you might define it:
  • Increase organic traffic by 320% Q1 this year
  • Achieving this target will allow the business to generate more quality leads
  • Progress will be measured in the number of new leads and sales growth
  • Hiring additional marketing staff, writing more good and relevant content
  • The Digital Marketing Manager is responsible for this metric
  • Traffic will have increased by 30% Q1 this year
  • It will be reviewed every week

What is the KPI dashboard?

A KPI dashboard is a real-time visualization (it is available on many devices; mobile, desktop, or to a wall-mounted TV) of the KPIs you’ve selected. The best KPI dashboards are customizable, allowing you to make a lot of custom wishes such as; change colors, organize your KPIs, and see your progress in a unique sight.

Are KPIs still relevant?

KPIs often have negative connotations associated with them. Unfortunately, many business users are beginning to see the Key Performance Indicator numbers monitoring as a traditional practice in business. This is because of KPIs fall victim to that most human of all problems: the shortage of communication.

The truth is simple: Key Performance Indicators are only as vital as you make them in that way. Key performance indicators require time from your side, effort, and employee buy-in to live up to their high expectations.

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KPI was last modified: May 25th, 2020 by Mirjana
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