What is a KPI?
A key performance indicator (KPI) is a measurable value that demonstrates how effectively a company is achieving key business objectives. Organizations use KPIs to evaluate success at reaching targets. High-level KPIs may focus on the overall performance of the business, while low-level KPIs may focus on processes across departments like sales, marketing, HR, or support.
Definition of a Key Performance Indicator (KPI)
KPI, or a key performance indicator, are measurable values used to evaluate how successful a person or organization is at reaching a target. You can have high-level KPIs that look at the performance of your business, or KPIs that drill down into processes at the individual or departmental level, too.
“A quantifiable measure used to evaluate the success of an organization, employee, etc. in meeting objectives for performance.”
– Oxford’s Dictionary
“A set of quantifiable measurements used to gauge a company’s overall long-term performance.”
“A way of measuring the effectiveness of an organization and its progress towards achieving its goals.”
– Macmillan Dictionary
Basics of using KPIs
Now that we’ve defined a KPI, let’s take a look at the basics of using a KPI.
Have you ever adopted an industry-recognized KPI, only to find it doesn’t work for your business? It’s important to remember that KPIs are a form of communication. Meaning that they abide by the same result and best-practices as any other form of communication: succinct, clear, and relevant information is most effective.
To develop a strategy for formulating KPIs, start with the basics: understand what your organizational objectives are, how you plan to achieve them, and who can act on the information. As you iterate and develop, you will gain a better understanding of which business processes can be on a KPI dashboard and who you should share that dashboard with.
Let’s look How to write a KPI
It’s important that KPIs are customized to your business situation and developed to help you achieve your goals. Follow these steps to write clear, measurable KPIs.
- Write a clear objective for your KPI
Your KPI should be connected with a key business objective. Without aligning your KPI to a business objective, you’re working towards a goal with no impact for your organization. A KPI needs to be more than an arbitrary number, too. KPIs should express the strategic objectives of your organization. Most importantly, KPIs should tell the story of your company.
- Share your KPI with stakeholders
Remember when we said that KPIs are a form of communication? KPIs need context in order to be effective. You have to explain what you’re measuring and why you’re measuring it. Share your KPIs with employees and stakeholders so they are aware of the direction of your organization. Withholding that information creates misalignment among teams. Listen for feedback and questions so you can identify and refine how you communicate your goals and KPIs.
- Review your KPIs on a consistent basis
It’s essential that you review your KPIs on a consistent basis. Review your KPIs from two perspectives: your progress against the KPI and your progress to determine the effectiveness of the KPI. If you’re not making any progress, the objective of your KPI may have missed the mark and it’s time to iterate.
- Create actionable KPIs
Follow these 5 steps to create actionable KPIs.
- Review business objectives: Remember, KPIs aren’t static! Your KPIs should evolve as your business objectives evolve.
- Analyze your current performance: Are you setting achievable targets? Analyzing your performance is essential to understand your areas of success and areas of improvement. Look at your historical performance data, too, to set a baseline for what you’ve accomplished in the past using a platform like Power Metrics.
- Set short and long term KPI targets: Set your long-term goals (whether it’s quarterly or yearly) and then work backwards to identify the milestones (or short-term targets) that you need to reach along the way. This way you can continually reassess and change course as you work towards your bigger targets.
- Review targets with your team: Teamwork makes the dream work! It’s an old adage, but it still remains true. It’s important that everyone remains in-the-know so you’re all working towards the same end goal.
- Review progress and readjust: Make it a habit to check in on your status. KPIs aren’t set-it-and-forget-it. Regularly check-in against your performance and relevance of your KPIs. And once you make it habit, it’ll get easier every time!