A key performance indicator (KPI) measures value and demonstrates how effectively a business is working towards achieving key business objectives. Implementing KPI is used at various levels by organizations and shows the reaching of every target.
High-level key performance indicators may focus on a business’s overall performance, while low-level key performance indicators may focus on specific departments.
Used effectively, key performance indicators may provide to be invaluable to companies. However, this is reliant on the effective use of such key performance indicators. This is why it is important to properly implement such key performance indicators.
The key to properly implementing KPIs is using succinct, clear, and relevant information. Such information will be more likely to be absorbed and acted upon.
Essentially, KPIs have three major functions: to give a timely overview of a company’s performance, to highlight potential problems and slowing growths, and to direct decision-making with actionable data. This is why it is important for every manager to possess the ability to implement KPIs.
There are several factors to be considered in the implementation of KPIs. The first step is identifying the area of business performance you wish to measure. KPIs can be implemented in different ways in examining the performance of a business.
You may choose to examine the overall performance of the business or to examine a specific area of the business. KPIs may be used to measure financial performance, business growth, health and safety management, customer satisfaction, and employee retention.
Choosing a specific area is important as it improves the effectiveness and performance level of the KPI.
After choosing the specific area to be measured, it is important to establish a specific target. The chosen target should not be vague. It should not simply be “the business needs to increase its customer base”.
Instead, it should be more specific so that current and future performance can be more properly measured against the chosen goal. It may be that “the business needs to gain twenty thousand new customers in the next twelve months.”
The current performance should be noted. The larger target may be broken down further into milestones.
As an example, you may decide that gaining twenty thousand new customers in the next twelve months shall require getting at least one thousand seven hundred new customers every month. This way, the KPI shall measure the constant increase until the final target is met.
KPIs help to review performance, and this guides decision-making. Performances should be regularly reviewed based on the information from the KPI to know if the goals set are still feasible.
- Defining Objectives for Implementing KPIs
- Choosing KPIs
- Data Collection
- Analysis and Reporting
- Executive Summary Dashboard
- Conclusion of Implementing KPI
Defining Objectives for Implementing KPIs
In the proper implementation of KPIs, strategic objectives are important. A strategic objective is an action-oriented statement that defines what must be done in order to achieve the strategy. In essence, it is a simple intent designed to deliver continuous improvement.
The full set of objectives will provide the strategy’s building blocks. The strategic objective will reflect the desired end goal, and the defined measure will be quantified in the associated KPI.
KPIs are of little importance if they are not linked to a strategic objective. Therefore, they must be linked to a strategic objective in order to be of importance.
Strategic objectives must be useful to the department or area the KPI is set for, while also contributing to the general organizational structure of the company and the company’s business goal.
A business goal is simply a broad statement of what you want your business to achieve. Goals should fit with your business’s vision and mission and integrate with the values of your business. Business goals should be stated in simple terms, be easy to read and understand and be flexible enough to evolve as the business evolves.
The selected objectives must be actionable. They must be regularly reviewed, based on performance, to keep the objectives feasible.
The review may be either weekly or monthly, depending on the nature of the objective. The objectives should be changed when they become redundant or unattainable. The objectives must be specific and not vague.
The selection of objectives may be based on either outcome or performance. The outcome objective could be the achievement of a specific measure, such as the volume of product sales. Performance objectives are more focused on how outcomes are to be reached.
For instance, if costs are saved through a mode of operation, that shall be the use of performance objectives to obtain outcome objectives. Objectives help to align the activities in a company with a major goal.
While there is no single sentence that solves the problem of knowing how to choose the right KPI, there are a number of factors that should be considered. These factors shall influence that KPIs matter most to that kind of business, and that metric is most important.
Firstly, it is important to choose KPIs that are directly related to the goals of the company. KPIs are quantifiable measurements or information that are used to determine your company’s performance in relation to some goal. The KPIs chosen must be directly related to the objectives chosen.
Furthermore, it is better to focus on a few key data than to get over-flocked with information. With KPIs, everything can be measured in detailed metrics, including views, clicks, conversions, opens, and sends, among others. However, it is important to recognize that less may be more. Rather than choosing dozens of metrics to measure and report on, it will be more productive to focus on just a few key metrics.
Attempting to try tracking too many KPIs might lead to missing important information. Every company, business, or industry is different, and so there is no standard KPIs that apply across the board in every situation.
Also, there is no standard number of KPIs to have. However, in most cases, between four and ten KPIs are usually sufficient. While the KPIs should not be too few, they should not be too many, either.
Another factor that influences the choice of KPIs is the stage of growth of the company.
Start-up companies in their early stage typically focus on data in alignment with business model validation, while more established companies focus on data in alignment with cost per acquisition and customer lifetime value. Also, the company’s industry will also affect the relevant KPIs, as different industries may have different KPIs.
A service-providing company may choose to focus on members of staff available, while a sales company may choose to focus on goods available.
Important factors that often prove to challenge in data collection for KPIs are timeliness, accuracy, and completeness.
As the process of making decisions is highly impacted by the performance information made available in monthly reports, offering unreliable information may bring serious damage to the business, by influencing the making of wrong decisions.
There are several steps that should be considered in ensuring that the data collection process is an effective one.
There should be an assignment of specific individuals to the task of gathering data. The data custodian, or custodians as the case may be, should have experience in reporting metrics/KPIs, measuring, skills to work with technology, knowledge as regards the processes, ethics as well a sense of integrity.
Depending on the company’s situation, special individuals may be employed as data custodians, or such duties may be assigned to existing employees who are capable of performing those duties.
A data gathering process map should also be developed. This shall offer data custodians better visibility in relation to data collection steps and deadlines, amongst other things that need to be followed. Furthermore, there should be a KPI documentation form that provides guidelines for the process.
This will make sure there is consistency in evaluating each KPI by representing details like KPI definition, data sources, calculation formulae, and measurement limitations. Such a KPI documentation that provides guidelines will significantly increase the quality of the data collected.
The training of data custodians is important. This is even more so in companies that are unable to employ specialized data custodians. Such training may either be formal or through internal knowledge gathering and sharing. The training of such data custodians shall improve the collection of data.
Internal audits should be carried out. This shall involve reviewing the data gathering process. It shall help in discovering vital problems that may be affecting the data quality is obtained. Such critical issues may then be dealt with once they have been discovered.
Importantly, modern technology should be integrated into the data gathering process. The use of modern technology shall save time, as well as make the data collected more accurate.
Analysis and Reporting
A KPI report is simply a “strategic tracking method” that will help any organization better define and track the numbers you want to hit. It facilitates the analysis, organization, study, and measurement of the essential business KPIs over a specified period of time.
Doing this helps in the identification of potential strengths and weaknesses, trends, and areas that may be taken advantage of in improvement.
Today’s world is run by data; therefore, companies that hope to thrive must be capable of making decisions based on such data.
The importance of KPI reports lies in the fact that they encourage businesses to set reasonable objectives and benchmarks, and these goals and benchmarks are important in encouraging and facilitating improvement, evolution, and adaptability in an ever-evolving digital landscape.
The setting and measurement of KPIs grant insight into businesses that may otherwise be overlooked. This insight varies from customer actions to financial inadequacies as well as content performance.
There are several processes that should be gone through in creating a KPI report.
Firstly, it is important to outline your business goals and objectives. Depending on factors such as size, the sector, and key objectives, every company will usually have its individual sets of KPIs dedicated to different areas and departments inside the organization.
In understanding that KPIs will prove most valuable to a particular business, it is important to have stakeholders involved. A discussion may be had by the business manager with stakeholders regarding the business goals, aims, and objectives in an open environment.
Doing this will grant a broad perspective of where efforts should be aimed, as well as the insights and metrics worth calculating for success. With this, the basis of whatever success is to be attained with the KPI is formed.
The next stage involves taking a closer look at data sources. KPI report templates of the modern-day use data connectors obtained from different platforms and sources to consolidate all data.
It does this by working with the assigned KPIs to provide the insights required for the sustainable success, improvement, and growth of the business. For this reason, it is necessary to perform a review of the data source.
There must be a proper consideration as to whether data sources best align with business goals, and will best align with KPIs, and this should be done before the creation of the dashboard. Whatever data is not required should be removed.
Doing this streamlines effort and ensures that the KPI dashboard only contains information and insights worthy of analysis. In practice, for instance, this implies that accounting reports should tally with certain financial data needed for the generation of insights.
A KPI software is the most effective method of collating and managing performance indicators. This is because it will empower the user to create comprehensive summary reports from various metrics and visualize them through powerful dashboards.
Of all the processes available to make data visual, the dashboard remains the most preferable due to its efficiency, effectiveness, and its easy to navigate format.
Moreover, once the user sets up the user access, reports, key performance indicators, and tailors the look, functionality, and feel of reports to a particular preference, the user shall be able to gain swift 24/7 access to the most valuable data through the medium of a smartphone, a desktop or a tablet.
The final part of the analysis and report of KPI is data visualization. The visualization of data is important and pivotal in reports, irrespective of the shape or size of the report.
Through the visualization of data, values can be extracted from the most important data at a glance, tell a story with the metrics or insights, and share critical information with others both within and outside the organization in a way that is easily understandable as well as inspirational.
Once the reports are up and running, it is important that the reports are monitored regularly. Tweaks and improvements may then be made to the reports as required.
It is important for the data obtained from the KPIs to be communicated, and this is best done through KPI dashboards.
A KPI dashboard is a simple display of vital information that is needed by decision-makers in achieving objectives, and this information is displayed in a visual form. At a glance, the KPI dashboard communicates all information that is of importance in decision making.
KPI dashboards are best considered from a strategic and operational point of view. A strategic KPI is more focused on the future, seeking to identify possible obstacles and challenges that may be faced on the way to achieving key objectives and goals.
The operational dashboard, on the other hand, is more focused on the present. It is concerned with the day-to-day processes and outputs of a business to ensure the smooth running of activities.
The operational dashboard provides information on subjects that might become issues, so that they may be solved before they become problems and affect performance. Both the strategic dashboard and the operational dashboard are important in the success of a business.
A good key performance indicator dashboard will grant decision-makers quick access to the critical indicators or instruments of the business, and it shall help the decision-makers decide whether they are headed in the right direction or not.
The designing of a goof key performance indicator requires careful thought. It must not be so crowded with detail that it becomes difficult or impossible to decipher important information.
Neither should style be upheld over the usefulness of the dashboard, as its primary purpose is not to be forgotten.
In a frantic corporate environment, managers and decision-makers are flooded with information very often, every day. It is against this background that a key performance indicator dashboard that clusters all the useful and important data in a single location becomes an extremely useful tool.
At a glance, it shall enable the user to know where they are and what they need to do. There are some tips that may be used in creating an effective KPI dashboard.
Firstly, it shall be helpful to keep a KPI dashboard on a single page. The point of a KPI dashboard is to communicate important information at a glance, and this shall be better done when all of the information is contained on a single page.
The dashboard should not contain excessive detail. Furthermore, the dashboard should include only the most necessary information for making decisions.
In the creation of the dashboard, the focus should be placed on delivery and understanding. The dashboard should be easy to look at, navigate, and understand. Simplicity should be chosen over complexity in the creation.
There is a considerable number of software that may be used in the creation of KPI software. The process shall be easier through automated dashboards. In minutes, KPI dashboards may be created.
Such dashboards shall be rich visually, color-coded, and intuitive. This way, users shall be able to understand information at a glance and update the information with the click of a button.
Additionally, the information may be accessed through a browser anywhere, and at any time in some instances, as a lot of the modern-day tools are web-based. Through this, ongoing data crunching, reporting, and communication may be made much easier with software.
Whatever the option that is chosen for the key performance indicator, the important factor is the focus on key KPIs that will properly inform decision making.
Decision-makers and business leaders lack time to wade through great bulks of data in an attempt to ferret out the important ones.
Through the maintenance of a clean, simple, and focused dashboard, better decision-making and improved performance of the business shall be within reach.
Executive Summary Dashboard
Executive dashboards, popularly called strategic dashboards, offer time-constrained company executives with necessary business intelligence, represented in a visual format.
It is necessary to create the dashboard on the basis of meaningful KPIs in order to enjoy the advantages of executive dashboards.
Executive dashboard benefits include the alignment of business actions with corporate strategy, the boosting of productivity, and getting answers related to vital business questions. This shall be possible, and in fact, easy, where there is a combination of real-time data and the right web-based application.
Sense can be made out of massive amounts of data using an executive dashboard, and fact-based decisions may be made in real-time. Executive dashboards are also known as strategic dashboards, and it is a graphical interface that uses real-time data.
Through access to this information, managers get a big picture of the organization against critical metrics, are able to identify opportunities for expansion, and are able to detect where improvements are needed.
Dashboards consolidate and order numbers, KPIs, as well as performance scorecards, all on a single screen.
This is tailored for executives and managers. The interface that should be customizable should have the ability to pull real-time data from varied sources such as customer relationship management systems, the email system, a web analytics programs, or accounting software.
There are three important factors to observe in determining that KPIs should be included in a dashboard. First, they should be qualitative and quantifiable. Second, they should relate directly to the goal of the organization. Third, and most importantly, they must be in alignment with the measurement of the success of the organization.
With the use of dashboards, businesses can continue to grow through the making of strategic and tactful decisions aided by the dashboards. This is vital in this age of global competitive pressures.
Very often, executive summary dashboards may be accessible to more than one person at a time. The dashboard provides several benefits. Firstly, it assesses performance against plans to take meaningful action. It also improves both internal and external communication while saving time. Furthermore, it boosts employee productivity and increases profitability.
Conclusion of Implementing KPI
Picking a few KPIs for your company might make proper measurement difficult; however, having many tools will make you chase irrelevant things. Therefore, you need to find out what works for your company and implement KPI (matched) for performance growth.
How many KPIs should a worker have?
Sometimes, only one KPI needs measurement, and it helps to keep things simple. But depending on your business, you can measure more than one KPI will produce the right results
What are examples of metrics?
The operational metrics are:
1. Marketing: CPA (Cost-per-Acquisition)
2. Human Resources: Absenteeism Rate
3. Human Resources: Overtime Hours
4. Sales: Lead-to-Opportunity Ratio
5. Sales: Lead Conversion Ratio
6. Logistics: Delivery Time
7. Logistics: Transportation Costs
8. IT: Average Handle Time
Why KPI Is Important?
KPI is important in business because they help to keep objectives alive, and it can be used in making decisions.
When every employee’s KPI is communicated, they will know the various roles they should play and keep it in mind.
What Is The Difference Between KPI and Business Metrics?
KPIs are values measured to show your effectiveness towards achieving a business goal, whereas metrics are used to keep track of the status of a particular business process.
KPI tracks performance and achievements while metrics track processes.