KPI is an abbreviation of Key Performance Indicator and is a term for a control mechanism that can help an organization or a department assess the progress on achieving their goals. KPIs thus provide information about how the organization or department performs in relation to its goals.
If you work in an office you’ve most likely heard the word key performance indicator or KPI and might even use them daily. KPIs are often used in business and management to measure performance, but not everyone will know exactly what the term contains. This article is an introduction to KPIs for anyone who might work with KPIs now, or in the future.
KPIs provide a way to measure performance. They show how well companies, departments, teams or individuals are performing in relation to their strategic goals. Well-designed KPIs are vital navigational instruments. They give a clear picture of the present and whether the business is where it needs to be.
KPIs can be calculated from data and used to measure if a given change has made any effect in the organisation other than the perceived. Or KPIs can measure how the organization is performing in relation to a set strategic goal. In an organisation, people often have their own view on things. By using KPIs you get a common ground from which you can mediate between different perspectives. This creates greater transparency in the organization.
Organizations often have ideals of which kind of organization they are and what they want to become. Ideals have to be implemented in the organisation and anchored in a common understanding to make a difference. Ideals about what the organisation is, and what it should be, mean nothing if it is not translated into something measurable. This is where KPIs come in. KPIs measure on a value and gives you a picture of how the organization is doing in that aspect.
The fact that KPIs are calculated from present data makes your goals more agile. Measuring KPIs from the right data can make your actions more proactive, as you will no longer have to act on previous data, as it is a real-time reporting tool. It is therefore also important that the KPIs are measurable.
When working in this field it is important to separate strategic goals and KPIs. Goals are what you set to achieve after a set amount of time, and KPIs are the hard facts – the numbers at the end of a mathematical formula. You can read more about goal setting here.
A few cases of what KPIs can measure are: How many units do we sell per week? How many sales do we make per month? How satisfied are the employees? The goals may be to produce 2% more each week. Or to make 1000 more sales each month, or to make sure the employees are more satisfied after a change in the environment.
One of the most important things about KPIs is that it says something that you are able to relate to. Otherwise it is of no use. So, it is important that a KPI reflects the actual performance and that the individual or group has a real chance of influencing their KPIs.