Key Performance Indicators – (KPI)
Key Performance Indicators, Organizations Success Factors are quantifiable measurements, agreed to beforehand, that reflect the critical success factors of an organization. They will differ depending on the organization.
- A business may have as one of its Key Performance Indicators the percentage of its income that comes from return customers.
- A school may focus its Key Performance Indicators on graduation rates of its students.
- A Customer Service Department may have as one of its Key Performance Indicators, in line with overall company KPIs, percentage of customer calls answered in the first minute.
- A Key Performance Indicator for a social service organization might be number of clients assisted during the year.
Whatever Key Performance Indicators are selected, they must reflect the organization’s goals, they must be key to its success, and they must be quantifiable (measurable). Key Performance Indicators usually are long-term considerations.
The definition of what they are and how they are measured do not change often. The goals for a particular Key Performance Indicator may change as the organization’s goals change, or as it gets closer to achieving a goal.
Definition of KPI:
The KPI can therefore be thought of as a measurement that tells that management the precise state of operations at any given point of time.
There are 4 basic components to any KPI.
- What is being measured?
- Who is measuring it?
- At What Interval is it Being Measured?
- How frequently is the Information being transmitted to the Control Room?
It is important that these 4 parameters are carefully defined keeping in mind the strategic, operational and technical capabilities. Measuring the wrong KPI or measuring the right KPI in the wrong manner can cause more harm than good to the organization that is measuring it.
Many things are measurable. That does not make them key to the organization’s success.
In selecting Key Performance Indicators, it is critical to limit them to those factors that are essential to the organization reaching its goals. It is also important to keep the number of Key Performance Indicators small just to keep everyone’s attention focused on achieving the same KPIs.
- Once you have good Key Performance Indicators defined
- Ones that reflect your organization’s goals
- One that you can measure
What do you do with them?
You use Key Performance Indicators as a performance management tool, but also as a carrot. KPIs give everyone in the organization a clear picture of what is important, of what they need to make happen. You use that to manage performance. You make sure that everything the people in your organization do to focus on meeting or exceeding those Key Performance Indicators.
You also use the KPIs as a carrot. Post the KPIs everywhere: in the lunch room, on the walls of every conference room, on the company intranet, even on the company web site for some of them. Show what the target for each KPI is and show the progress toward that target for each of them. People will be motivated to reach those KPI targets.
You can’t manage what you don’t measure. It is an old management adage that is accurate today. Unless you measure something, you don’t know if it is getting better or worse. You can’t manage for improvement if you don’t measure to see what is getting better and what isn’t.
Measure those activities or results that are important to successfully that achieve your organization’s goals Key Performance Indicators.
It is important that you communicate your metrics both up and down the organization. Boss wants to know what’s going on, but your employees need to know also. They are not motivated to improve unless they know how they are doing. In addition, most of the suggestions on how to improve will come from them.
Review your metrics and use them to guide your decisions. With your metrics in place, you can tell which strategies are working and which aren’t. If you make a change, you use the metrics to tell you, whether the change improved things or not. When the metrics show improvement, share that success with everyone. And don’t forget to reward the people, who were responsible for the success.
Business benefits realization out of the achieved KPIs is the ultimate goal for the entire exercise. This benefit realization exercise can be executed in the following way:
- Against the agreed KPIs and improvement in the business processes this can be extrapolated in value terms on the basis of a month, quarter and annual.
- Set the benefit realization target out of the KPI for each specific area on a monthly, quarterly and annual basis.
- Measure the expected benefits achieved for each specific areas on regular basis to justify the real benefit realization from the KPIs.
- Based on the findings and amount of business value realized prepare the “Business Value Realization Report” (BVRR) present to the management and team members.
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