Key Performance Indicator (KPI). Business monitoring. Purpose of use.

KPI Key Performance Indicator. Communication. Monitoring. Purpose of use

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Key index efficiency Is a measurable value that demonstrates how effectively a company is achieving key business goals. Organizations use KPIs at multiple levels to measure their success in meeting their goals. High-level KPIs can focus on overall performance business, while low-level KPIs can focus on processes in departments such as sales, marketing, HR, support, and others.

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Determination of a key performance indicator (KPI).

So what is the definition of a KPI? What does KPI stand for? What does KPI stand for? Here are a couple of other definitions:

  • Oxford Dictionary of KPIs: A quantifiable measure used to measure the success of an organization, employee, and more in achieving performance goals.
  • Investopedia KPI Definition: A set of quantifiable metrics that a company uses to measure its performance over time.
  • Macmillan's dictionary definition of KPIs: A way to measure an organization's performance and its progress towards achieving its goals.

1. What makes KPI effective?

Now that we know that KPI stands for Key Performance Indicator, he is as valuable as his action inspires. Too often, organizations blindly apply well-established KPIs and then wonder why that KPI does not reflect their own business and drive any positive change. 

One of the most important but often overlooked aspects of KPIs is that they are a form of communication. As such, they adhere to the same rules and best practices as any other form of communication. Concise, clear and up-to-date information is likely to be accepted and used.

In terms of developing a strategy for formulating a KPI, your team should start with the basics and understand what your organizational goals are, how you plan to achieve them, and who can act on that information. 

It should be an iterative process that includes feedback from analysts, department heads, and managers. As you unfold this fact-finding mission, you will have a better understanding of which business processes need to be measured using the KPI dashboard and with whom to share this information.

What makes KPIs effective?

2. How to determine the KPI.

Determining KPIs can be tricky. The operational word in a KPI is “key” because each KPI must be linked to a specific business result using a performance metric. KPIs are often confused with business metrics. While often used in the same vein, KPIs need to be defined according to critical or core business goals. Follow these steps when defining a KPI:

  • What is your desired outcome?
  • Why does this result matter?
  • How are you going to measure progress?
  • How can you influence the outcome?
  • Who is responsible for the results of the business?
  • How do you know that you have achieved your result?
  • How often will you measure progress towards a result?

As an example, let's say your target - Increase your sales revenue this year. You will call this the Sales Growth KPI. Here's how you can determine the KPI:

  • Increase sales revenue by 20% this year
  • Achieving this goal will enable the business to become profitable.
  • Progress will be measured as an increase in income in dollars
  • Hiring additional sales staff, promoting existing customers to buy more products
  • The Sales Director is responsible for this metric
  • Revenue will increase by 20% this year
  • Will be reviewed monthly

3. What is a SMART KPI?

One way to assess the relevance of a performance indicator is to use SMART criteria. The letters usually represent specific , measurable , achievable , relevant , time-limited ... In other words:

  • Your aim specific ?
  • Can you to measure progress towards this goal?
  • Is the goal real achievable ?
  • How much relevant the purpose of your organization?
  • What are timing achieving this goal?
How to determine KPIs?

4. Be even smarter in your KPIs.

SMART criteria can also be expanded to SMARTER with the addition of appraisals and revaluation ... These two steps are extremely important as they ensure that you continually evaluate your KPIs and their relevance to your business. For example, if you exceed your current year's income target, you should determine if this is the reason you set your target too low or if it is due to some other factor.

Key performance indicators

5. How to write and develop KPIs.

When writing or designing a KPI, consider how that KPI relates to a specific business result or goal. KPIs must be tailored to your business situation and must be designed to help you achieve your goals. When writing KPIs, follow these steps:

Write a clear goal for your KPI.

Writing a clear goal for your KPI is one of the most important, if not the most important part of developing a KPI.

The KPI should be closely related to the key business goal. Not just a business goal or something that might be important in your organization. This should be integral to the success of the organization.

Otherwise, you are striving for a goal that cannot achieve a business result. This means that, at best, you are striving for a goal that does not affect your organization. In the worst case scenario, this will result in your business wasting time, money and other resources that would be best diverted elsewhere.

The key takeaway is this: KPIs shouldn't just be arbitrary numbers. They need to express something strategic about what your organization is trying to do. You can (or should be able to) learn a lot about a company's business model just by looking at their KPIs.

Without writing out a clear goal, all of this will be lost.

Share your KPIs with stakeholders.

Your KPI is useless if it isn't communicated correctly. How are your employees - the people tasked with realizing your vision for the organization - to accomplish your goals if they don't know who they are? Or maybe worse: giving up joint use of KPIs can lead to alienation and frustration for your employees and other stakeholders who cannot understand where your organization is headed.

But sharing your KPIs with stakeholders is one thing (even though too many organizations can't do that). Moreover, they must be communicated immediately.

For KPI efficiency you need context... This can only be achieved if you explain not only what you are measuring, but also why you are measuring it. Otherwise, they are just numbers on the screen that have no meaning to you or your employees.

Explain to your employees why you are measuring what you are measuring. Answer the questions about why you chose one KPI over another. And the most important thing? Listen. KPIs are not infallible. Nor will they necessarily be obvious to everyone involved. Listening to your employees will help you identify where your organisation's core goals are not being communicated properly.

Let's say you have a lot of questions about why profit is not a KPI for your company. This is a reasonable belief for your employees. After all, making money is an integral part of any business. But revenue may not be all that your organization needs at the moment. Maybe you want to invest heavily in research and development, or you are planning a major acquisition. Getting a lot of questions like this is a sign that you need to better communicate your KPIs and the strategic goals behind them.

And who knows: your employees may even give you some ideas on how to improve your KPIs.

Check KPIs weekly or monthly.

Regularly reviewing your KPIs is essential for their maintenance and development. Obviously, tracking your KPI progress is important (what's the point of putting it in the first place?), But it's equally important to track your progress so you can gauge how successfully you developed the KPI in the first place.

Not all KPIs are successful. Some have goals that are unattainable (more on that below). Some fail to track down the main business goal they needed to achieve. Only by checking regularly can you decide if it's time to change your KPIs.

Make sure the KPI is up to date.

Security efficiency of your KPIs has five stages:

  1. Review of business goals.
  2. Analyze your current performance.
  3. Set short and long term KPI targets.
  4. Review goals with your team.
  5. Review progress and reconfiguration.

We've gone through most of this, but it's worth focusing on the need to develop goals for both the short and long term. Once you've identified a goal with a timeline that is in the future (say, the next few quarters or your fiscal year), you can work backward and identify the milestones you need to reach the goal.

For example, let's say you want to subscribe 1,500 subscribers to a newsletter in the first quarter of the year. You want to set monthly, bi-weekly, or even weekly goals to get there. This way, you will be able to continually revise and change course as needed along the way towards achieving your long-term goal.

You can split the goals evenly according to each month. In this case, it will be 500 subscriptions in January, 500 in February, and 500 in March. However, you can get more specific. January and March have more days than February, so you might want to set 600 for those months. Or perhaps you usually get more website traffic in February (your business may be at a major trade show), so you've decided to set your target of 800 this month.

Whatever it is, make sure you break down your KPI targets to set short term goals.

Develop your KPI to meet your changing business needs.

KPIs that are never updated can quickly become outdated.

Let's say, for example, that your organization recently launched a new product line or expanded overseas. If you don't update your KPIs, your team will continue to pursue goals that don't necessarily reflect a change in tactical or strategic direction.

Based on your results, you may think that you continue to perform at a high level. However, in reality, you may be tracking KPIs that do not reflect the impact of your efforts on your underlying strategic goals.

Checking your KPIs on a monthly (or ideally weekly) basis will give you the ability to fine tune or reverse course.

You may even find new and possibly more efficient ways to get to the same destination.

Make sure the KPI is achievable.

Setting achievable goals for your team is very important. A goal that is too high risks your team giving up before it even starts. Set a goal too low and you quickly wonder what to do with yourself once you reach your annual goals in two months of the calendar year.

Analyzing your current job is essential. Without this, you will have to blindly search for numbers that have no roots in reality. Your current performance is also a good starting point for choosing areas in which you should improve your skills.

Start digging through the data you've already collected to establish a baseline for what you've accomplished in the past. Tools like Google Analytics are great for this, but more traditional accounting tools that track revenue and gross margin.

Update your KPI goals as needed.

KPIs are not static. They must always evolve, update and change as needed. If you set and forget your KPIs, you run the risk of pursuing goals that no longer apply to your business.

Make it a rule to check regularly, not only to see how you are working with your KPIs, but which KPIs need to be changed or abandoned altogether.

For those who have never developed KPIs before, this can all seem tedious.

But here's the good news: Once you go through this process a few times, it will be much easier for you to use it in the future.

Putting it all together.

KPIs are usually an important tool for measuring the success of your business and making the adjustments necessary to make it successful.

However, the usefulness of individual KPIs has its limits.

The most important part of any KPI is its usefulness. Once it has outlived its usefulness, you should feel free to ditch it and start working on new ones that better align with your core business goals.

Using KPIs

6. Using KPIs as part of your performance management infrastructure.

The most common elements in most performance management structures are setting goals, measuring performance and managing all relevant actions.

According to the classic old adage, Goodhart's Law, "any observed statistical pattern will tend to decline once it is pressured to control."

Charles Goodhart was an economist in 1975 whose research was used to criticize government decision-making processes, especially with regard to monetary policy. Then this concept was widely adopted by Marilyn Stratern, "when a measure becomes a goal, it ceases to be a good measure."

A performance indicator or KPI is just one type of performance measurement. There are many performance management platforms that are similar but different. Each of these structures are elements that can be combined to help drive data-driven success. Let's dig into.

Step 1: Agree on a business strategy.

One Metric That Matters (OMTM) is a popular topic in startups these days. The main benefit of this simple yet extremely powerful tool is that you need to have a complete understanding of your business model in order to hone those metrics and align your entire organization.

Many will argue that sales are the most important metric when it comes to measuring business success. The problem with this metric is the measured outcome.

Ask yourself this question: What metric will help increase sales?

One answer to this question might be keeping track of the number of customers who have integrated your product with 3 other applications. This measure will indicate the level of engagement and the likelihood of getting them knocked down is likely to be reduced.

The reason is that once customers are locked up, they chunk less, which creates the right economy for the company to grow. So in this case, instead of looking at sales figures, we will only count customers if they are associated with 3 apps.

This is just an example and does not mean that you only need one metric! This structure helps to focus everyone's attention on what they need. most .

Step 2: Protect your baseline.

With business comes a compromise.

You've probably heard the saying, “You can have cheap, good, or fast. But you can only choose 2. ”Let's start with a classic framework that helps navigate these trade-offs. Balanced Scorecard (BSC) allows you to break down the main areas of your business (prospects), where it is necessary to monitor activities.

Four perspectives to be balanced:

  1. Financial perspective
  2. Client perspective
  3. Internal business process perspective
  4. A learning and growth perspective

These four key areas of your business are interconnected and all need to be aligned. When one is influenced, the other is influenced, in other words, there will be a compromise.

Step 3: putting your BSC strategy into action.

A balanced scorecard (BSC) strategy assumes that for each point of view, you develop goals, metrics (KPIs), set goals (goals) and initiatives (actions). A more recent platform that is becoming popular is the OKR Framework. Popularized by its use at Google, the OCR framework (goals and key results) is used to define and track goals and their results. Many argue that this framework sits between a KPI strategy and a balanced scorecard approach.

OKRs are used as a productivity tool that sets, communicates, and tracks goals across an organization so that all employees are focused in one direction. The system rewards employee success through clear work objectives and desired key results. The beauty of the system is that it provides a simple, practical and straightforward framework for defining, tracking and measuring goals, both what can be aspired to and what can be measured.

Step 4. Monitoring using the KPI dashboard.

The KPI dashboard provides you with a quick, real-time view of your business performance so you can get a better understanding of how the entire organization is performing.

General terms to be understood within this framework include:

Key Risk Indicator (KRI) : an indicator used in management to indicate how risky an activity is. Key risk indicators are metrics tracked by organizations to provide early warning of increased exposure to risk in various areas of the business.

Critical Success Factor (CSF) : is a management term for an element that an organization needs to achieve its mission. Critical Success Factors should not be confused with success criteria. Success criteria are most commonly used in project management to determine whether a project has been successful or not. Success criteria are defined with goals and can be quantified using KPIs.

Performance indicators : Measures the behavior, performance and performance of an organization at the individual, not the organizational level. For example, a person working in a call center might have performance metrics such as the number of calls answered, the average waiting time, the number of successful calls handled, and the average call duration.

Building good KPIs for your organization is an iterative process.

10 criteria to consider when developing KPIs.

Consider this list of criteria when building your key systems for measuring business performance:

  1. Based on quantities that can be influenced or controlled by the user alone or in collaboration with others
  2. Be objective and not based on opinion
  3. Get out of strategy and focus on improvement
  4. Be well defined and easy to understand
  5. Be relevant with a clear purpose
  6. Be consistent (in the sense that they retain their relevance over time)
  7. Be specific and relate to specific goals / objectives
  8. Be precise - be precise about what is being measured
  9. Provide timely and accurate feedback
  10. Reflect "business process" - ie. both the supplier and the buyer should be involved in determining the measure

Let's look at Tesla as an example.

Step 1 : One Tesla metric that matters is the number of new cars delivered in the quarter. This is a hot topic for investors to measure their success.

Step 2 : To build as many cars as possible while maintaining quality, Tesla must balance its core assets with their scorecard.

Financially: they may decide that the delivery of the cars is more important than the profit in the cars.

Customers: Customers have sent their orders and are waiting for their delivery, the longer it takes, the less excitement they have and the more likely they will give up. Therefore, it is very important that customers are satisfied.

Step 3 : Now that we have identified some goals with KPIs, we need to establish key results.

One KR for customers that is a standard measure in supply chains could be: Delivery performance (DP) is set at 90%, measured as meeting the customer's promised delivery date.

Step 4. Using a KPI dashboard to monitor key results.

Dashboards often provide a quick overview of KPIs related to a specific goal or business process.

7. Three ways KPIs can help build a better team.

In the business world, it is tempting to assume that Key Performance Indicators (KPIs) are the sole competence of “organizational leaders”: CEOs, presidents, board members, and other C-Suite executives who make important strategic decisions.

Reality couldn't be further from the truth.

KPIs, key metrics that define strategic success and serve as a yardstick for areas that may need improvement, are essential tools for growing your team and delivering high-quality results across the organization.

They may even offer an innovative solution to the intractable problem of employee engagement.

Employee engagement problem.

Employee engagement is something that many organizations face. According to Gallup, only 33 percent of workers in the United States (and a paltry 15 percent globally) consider themselves "engaged, passionate about their jobs and jobs, and committed to their jobs and jobs."

This has a profound effect on the bottom line of many businesses. To cite just one statistic, organizations with a highly skilled workforce have an average of 20 percent sales growth, says Gallup.

1) Revealing the power of employee engagement.

Employee engagement is one of the most elusive - and misunderstood - concepts in today's business world.

Many managers struggle to cope with a situation where employee expectations are growing every day. Workers are more mobile than ever before, moving between jobs at a pace that would have seemed impossible only decades ago. In a world where the other side of the fence is as close as searching on and articles on what workplace culture to spread on LinkedIn, she's also more informed than ever.

Dining room dining or foosball tables in the break room may be enough to accommodate some workplaces, but these are temporary fixes at best.

So how, then, can managers breathe life into a disbanded workforce?

There is, of course, no single solution. But one area that needs to be more focused is keeping employees informed and involved in developing the goals of your organization.

Calculate the performance indicator

Connecting employees to the purpose of your organization.

There is a story (which may or may not be true, but we will leave that aside for now) that often draws conclusions on blog posts about employee engagement. This is due to the visit of John F. Kennedy to NASA in the 1960s. The President approached the person working at the facility to ask what he does for a living.

“Mr. President, ”the janitor replied,“ I'm helping to put a man on the moon.

This response is often perceived as the pinnacle of employee engagement. What business owner, manager, or director would not want each of their employees to feel this level of connection with the purpose of their organization?

This partly has to do with defining the mission of your organization. “Making money” is not enough. If you want an employee to be really busy, you need to find a unique quality that has to get your employees out of bed in the morning. (And no, "getting a salary" won't cut it).

Once you've settled on this, you need to find a way to show your employees how they connect to it.

This is where key metrics come in.

Key KPIs

Connecting employees to the purpose of your organization.

Ask any employee why they don't feel involved at work and you will likely get some variation on the same topic.

  • They feel disconnected from the broader purpose of the organization.
  • They don't see any impact of their daily efforts - the actions that take up most of their time - on larger organizational goals.
  • They don't understand the strategic direction of the organization.

These are, in a way, separate problems. But otherwise they all stem from the same problem: poor communication, about strategy, between management and lower-level employees.

KPIs help solve this problem.

evaluate the effectiveness

KPIs are strategic in nature. Because they are different from metrics, they help companies really focus on what's important. Not everything can be a KPI. KPIs force you to focus on those metrics that truly highlight the ultimate goals of your organization.

Key performance indicators force an organization not only to evaluate the effectiveness of its strategy, but also to decide, first of all, what strategy they have. They show employees a lot about what really matters to management.

For example: Profit for charity is unlikely to qualify as a KPI. Why? Because charity is charity - it exists to achieve more impact beyond just winning quickly. Such an organization would be much more interested in the amount they put into scientific research, or perhaps in the number of laws they were able to change.

Wouldn't it be nice if your employees could see the end goals they are working for?

2) The role of KPIs in employee engagement.

Here are three main ways that adopting certain KPIs can help your organization build a better team.

They make everyone pull in the same direction.

One of the challenges that teambuilders constantly struggle with is bringing disparate elements of the organization together to focus on key goals. Salespeople worry about the little things about attracting new customers and converting them into customers. Your product development team is focused on the latest technology and is trying to bring it to market. Your HR team is dedicated to filling any vacancies and maintaining your workplace.

Adopting some KPIs can help bring it all together.

By focusing on the key metrics that truly highlight business success, you can show your employees the role that their work plays in the department structure.

They help connect the work of employees with the goals of the entire organization.

KPIs are a great way to communicate strategy to your employees. They help overcome the sometimes messy, mysterious and ambiguous world of tactics and connect them to the ultimate goals of your organization.

Many of us have experienced this. We're so caught up in our own little work bubbles, struggling to make sure we stay on top of our own particular set of tasks, that we often don't understand why we are doing it in the first place.

Is it any wonder that frustration and, ultimately, disconnection arise?

KPIs help overcome this confusion. They step back from the chaotic world of tactics to define the ultimate goals for which everyone is working.

Achieve key goals more efficiently.

Micro-management poses many challenges to employee morale. But one of the worst is the brake he puts on employee creativity.

Let's say you're a manager in charge of launching a major new product. It should be self-evident that you want to make a product launch a success. But there is a big difference between telling your team about the number of sales you would like to achieve and having a detailed understanding of how you want the website to look, what marketing channels you would like to use, and even when to post from social media. ...

Some managers may think that they are just doing their job or even helping employees by offering their "suggestions". In fact, what they do is stifle the creativity of their employees and probably frustrate them ad infinitum.

No one expects managers to be completely immersed in what their employees do. But the line between setting the ultimate goal and telling your employees how to get there is beautiful.

The advantage of setting KPIs is that they allow you to set expectations for what you want to achieve, while keeping specifics down to the creativity and ingenuity of your team.

3) How KPI decision making can take your employee's engagement to the next level.

  • Discussion begins on strategic direction: you will be surprised to find out how few organizations formulate their strategic direction in a clear codified form. Instead, employees - including some fairly senior managers - are left to read between the lines to discern their organization's strategy. Earn? Selling widgets? "Make a difference"? Creating a KPI helps start a discussion about strategy. This makes you (and your staff) ask the question, "Okay, what are we really trying to do here?"
  • This helps to establish how KPIs connect to strategic goals: setting a set of KPIs for your employees and saying “here, achieve it” is not enough. Without context, KPIs are just a meaningless bunch of numbers. Participation in such an exercise will allow employees not only to learn what KPIs are, but also to see how they relate to the ultimate goals of the organization.
  • He directly engages employees: people love to be listened to! To say nothing else, take the time to hear what your employees have to say so they will reap their inherent benefits in terms of participation.
KPI decision making

8. Are the performance indicators up to date?

KPIs often have negative connotations associated with them. Unfortunately, many business users are starting to view KPI monitoring as an outdated practice. This is because KPIs fall prey to this most human of all problems: lack of connectivity.

The truth is, KPIs are as valuable as you make them. KPIs take time, effort, and employee involvement to meet their high expectations. Bernard Marr, a highly sought-after author and expert on enterprise performance, sparked an interesting conversation on this topic in his article “What The KPI Is? »It is clear from the comments that while the KPIs may not have been liked (depending on who you ask), their potential value remains in the hands of those who use them.

So why are KPIs so important?

Setting KPIs for an organization usually occurs during the strategic planning phase, whether you do it annually, quarterly, or even more frequently, the goal is to ensure that the entire organization is meeting the same goals. Imagine a large rowing boat with ten people, if 3 people think the boat is heading left, 5 people think the boat should go right, and 2 people think the boat should turn around. What's going on with the boat?

The boat will start spinning around. Thus, ensuring alignment from the top of the organization to the frontline is the difference between a boat moving forward in unison and not moving anywhere.

9. Key performance indicators in action.

KPI report.

Whether you share a KPI report daily, weekly, monthly, quarterly, yearly, or all of the above, setting up a good KPI reporting platform is key to your success. At TopUser.Pro, we monitor several KPIs, but then more closely monitor all measures and actions that may affect this KPI.

For example, if we track monthly recurring revenue (MRR), we know that the number of quality leads, the number of trials, the number of successful trials, and many other metrics will affect the success of the MRR. Therefore, we track the number of new leads generated by the email report on a daily basis.

 We have a dashboard to track a few key actions to ensure a seamless live trial launch of the product, and we track the number of onboard success stories on a monthly basis by the customer success team.

KPI dashboard

KPI dashboard.

As KPI dashboards become more and more common in today's fast-paced organizations such as SaaS and cloud companies, they tend to be a consumer format in which a person can view their data in real time, whereas reports tend to present are specific snapshots at a moment in time.

One of the most common use cases for KPI dashboard tools are startups that share their organization's KPIs to achieve consistency with all employees. As you walk around their offices, monitors will be placed next to specific teams that display real-time results, such as the number of support calls resolved today or the number of new wins.

Key business performance indicators

So what about KPIs for your business?

If key performance indicators (KPIs) are your most important goals for your business, how will you bring your organization in line with this? Performance measurement, as defined in Wikipedia, states: "Performance measurement is the process of collecting, analyzing and / or presenting information about the performance of an individual, group, organization, system, or component."

Thus, business performance indicators can be viewed as a way to quantify (i.e. measure) the effectiveness and efficiency of an action or result that can align or affect your KPIs. Before choosing and defining a business performance metric, managers and executives need to know how to write one. 

There is a lot of great literature and research on this topic, including Andrew Neely of the University of Cambridge, who wrote when developing performance metrics that you can take a structured approach by going through a list of questions to consider when building a performance measurement system.

10. Top 15 most common questions we ask in KPIs.

  • What does KPI stand for?
  • What are KPIs?
  • What is KPI used for?
  • How do I develop a KPI?
  • Who determines the KPIs?
  • How do I create a KPI?
  • What KPIs should I use?
  • When should I use KPIs?
  • Why should I review KPIs?
  • When should I review my KPI?
  • How can I report on KPIs?
  • How many KPIs should I track?
  • Why are KPIs important?
  • Which companies are using KPIs?
  • What is a KPI Dashboard?

Ready to get started?

✔️ What does KPI stand for?

 KPI is a numerical indicator of success in a certain activity or in achieving certain goals.

✔️ What is a KPI?

 KPI is a measurable indicator of the results achieved.

✔️ What is KPI used for?

KPI helps to analyze the performance of the company or personnel, as well as the quality level of achieving the goals.

✔️ Who determines the KPI?

KPIs are developed internally by the management. In each company, the KPI is determined individually.

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