KPI is short for key performance indicators. They are critical measures of the progress towards a set business objective. As Peter Drucker once said, “What gets measured gets done.” The goal of setting KPIs is to improve on strategic and operational aspects of the business.
Businesses that use KPIs have to set targets (which show the level of performance they desire to reach) and then measure the performance against the set targets. By so doing, businesses seek to improve on the signs of success, which will later help the company achieve the results they yearn.
Good key performance indicators should have the following features:
- Provide evidence of progress towards the success of a project
- Quantify the rate of progress
- Show a comparison that indicates progress over time.
- Track efficiency, effectiveness, management, punctuality, behaviors, economics, personnel, and project performance
If someone uses KPIs in a bid to lose weight, this is how it goes. The actual weight of the person becomes the lagging indicator, which is the evidence of past success. The calories they eat every day refer to the leading indicator as they are evidence of future success. If, for instance, the person is 113kg currently and they need to lose weight to be 85kg, they can set a target of reducing the calories they eat to 1,800 every day. In such a case, the lagging key performance indicator will be 85 kg after a year.
Businesses can measure how they perform by understanding different metrics and how they impact performance. There are different types of KPIs that a company can use:
- Inputs –Here, the business measure the quantity and quality of resources consumers in the process of working towards the target.
- Process – This measures the efficiency and effectiveness of the methods used to achieve the results. The tools and equipment used to work towards the results are also considered.
- Output – This measures the work is done and the produced results.
- Outcomes – Outcomes are measured either as immediate or end outcomes. For a business, immediate outcomes might be a minor success; for instance, increased brand awareness while end outcomes might be major successes as increased brand awareness might increase revenue.
- Project – Project KPIs measure the performance of project milestones.
How do all these types of KPIs come together?
If, for instance, your business supplies some of the top-rated pellet smokers that offer budget options, the input will be the cost of the pellet smoker and the time you have invested in it. The process might be assembling the pellet smokers, and the output would focus on the smoker (how effective does it grill food?). The outcomes would be the satisfaction of the customers who buy the smoker while project KPIs would focus on any improvements to the pellet smoker or starting new marketing campaigns.
A company such as Traeger might have goals to appear at the top when people search for “how Traeger’s pellet grills compare to other grills”. In such a case, the company sets goals to improve brand awareness and improve its quality. They then set KPIs to ensure they achieve the desired results.
Writing and Developing KPIs
You need to write a clear objective for your KPI. You need to connect the KPI to the key objective of your business. If the objective if not an integral part of your business, you will be wasting time while working towards a target that makes no sense to your business.
Just like when you are setting goals, your KPIs need to be SMART – Specific, Measurable, Attainable, Relevant, and Time-Specific. Your KPIs are not just arbitrary figures but critical indicators of the progress your business is making.
Your KPIs should have strategic and operational measures. The strategic focuses on strategic goals and looks at the immediate and end outcomes. They evaluate the progress that an organization is making towards achieving its goals. They assess the progress based on financial capability, internal processes, and organization capacity.
On the other hand, operational measures focus on activities and tactics an organization uses to achieve its goals. These measures help an organization make the right decisions for its day to day activities.
Other measures involved in KPIs include risk measures that assess risk factors and employee measures, focusing on the availability of needed skills, the behavior, and the performance of employees. By using these measures the right way, organizations can improve their performance significantly. You have to assess your KPIs periodically to ensure that your projects are on track.