KPIs or Key Performance Indicators are the primary data on dashboards and scorecards which are commonly used to present performance reports to staff and executives. Confusion occurs when the term ‘metric’ is used incorrectly, as a KPI is a metric, but a metric is not necessarily a KPI. There are several ways to identify good KPI’s.
A KPI is defined by executives to reflect strategic value drivers. These represent specific activities which determine short and long term future success. In most cases these are not financial measurements, but may monitor excellent customer satisfaction or high quality of products. These also can be seen to cascade through the levels of an organisation with the data captured, allowing flexible reporting and analysis.
Good KPI’s are based on standard and established measurements. This can be a lengthy process for corporations to be able to specifically define the meaning of measurements.
They are also based on correct data. The measurement of a good KPI must have valid results from accurate data. In many cases insufficient data is available to produce accuracy. These measurements must be regularly audited to determine the KPI’s relevance. A good KPI is fresh and has maximum impact; otherwise it may need revision or be discarded as reaching the end of its natural lifespan.
Comprehension and Context
A good KPI is easy to comprehend and not clustered within a myriad of irrelevant or outdated ones. This ensures it has maximum impact to hold attention and inspire behavioural change. They must also be easy to understand, as the power of a KPI is lost if employees have no idea what has been measured, how it was calculated and how they affect the outcome. The ability of a good KPI is to put the performance into some context, evaluating performance against expectations, providing thresholds, benchmarks or targets to achieve. In addition to indicating the improvement, drop or static performance, this is a very powerful motivational tool.
A good KPI also has an incentive attached to it. This is usually after it has been modified to ensure the correct effect of empowering employees or staff. This gives a sense of empowerment to take appropriate action to improve the KPI. This should lead to improved performance and positive action being taken. Human nature is to try to exploit a system to minimize effort and yet report maximum performance to gain rewards, so good KPIs have been thoroughly checked and are monitored carefully to ensure they encourage the correct result.
KPIs can be over used and become counterproductive. The use of several KPIs is far more effective than using hundreds of measurements and metrics. This will ensure the focus of staff remains on key tasks and activities which can add the most improvement to the organisation. A good KPI should act as a vehicle of communication encouraging improvement and allowing the aims and focus to be directed throughout the company. This helps pull everyone in the same direction to enable growth and productivity.