Skip to main content

Key performance indicators (KPIs)


Kay performance indicators (KPIs) are business metrics used by corporate executives and other managers to track and analyze factors deemed crucial to the success of an organization. Effective KPIs focus on the business process and functions that senior management sees as most important for measuring progress toward meeting strategic goals and performance targets. 

Furthermore, different business units and departments are typically measured against their own KPIs, resulting in a mix of performance indicators throughout an organization -- some at the corporate level and others geared toward specific operations.

Importance of KPIs

Key performance indicators shine a light on how well a business is doing. Without KPIs, it would be difficult for a company's leaders to evaluate that in a meaningful way, and to then make operational changes to address performance problems. Keeping employees focused on business initiatives and tasks that are central to organizational success could also be challenging without designated KPIs to reinforce the importance and value of those activities.


In addition to highlighting business successes or issues based on measurements of current and historical performance, KPIs can point to future outcomes, giving executives early warnings on possible business problems or advance guidance on opportunities to maximize return on investment. Armed with such information, they can manage business operations more proactively, with the potential to gain competitive advantages over less data-driven rivals.

Types of KPIs

KPIs that measure the results of business activities, such as quarterly profit and revenue growth, are referred to as lagging indicators because they track things that have already occurred. By comparison, KPIs that herald upcoming business developments -- say, sales bookings that will generate revenue in future quarters -- are known as leading indicators.

There's also a difference between quantitative indicators that have a numerical basis and qualitative indicators that are more abstract and open to interpretation, such as assessing user experience with a product or on a website. In the case of qualitative indicators, identifying useful KPIs can be challenging; the selection of appropriate ones depends on an organization's ability to actually measure them in some way. For example, the percentage of abandoned transactions in online shopping carts might be one indicator of customer experience on a retail website.

From a functional standpoint, key performance indicators encompass a wide variety of financial, marketing, sales, customer service, manufacturing and supply chain metrics. KPIs can also be used to track performance metrics related to internal processes, such as HR and IT operations.

How to measure KPIs

Once key performance indicators have been identified, they should be clearly communicated to employees so all levels of the organization understand which business metrics matter the most and what constitutes successful performance against them. This could include the entire workforce on broad corporate KPIs or smaller groups of workers on ones that apply to particular departments.

In most companies, KPIs are automatically tracked via business analytics and reporting tools that collect relevant data from operational systems and create reports on the measured performance levels. Increasingly, KPI results are presented to executives on business intelligence dashboards or performance scorecards that often include charts and other data visualizations, with the ability to drill down into the performance data for further analysis. Multiple KPIs also underlie balanced scorecard frameworks that pull together sets of metrics in an effort to provide a broader view of business performance beyond operating income and other common financial measurements.

One of the challenges in setting key performance indicators is deciding how many to track to determine organizational success. Having too many KPIs may dilute the attention paid to the truly important ones. As a result, it may be more effective to limit the scope to small sets of indicators.

Managers must continually evaluate KPIs to ensure they're still relevant and aligned with priorities in business operations. If individual KPIs no longer serve a useful purpose, they need to either be refined or replaced altogether.

 

Comments

Post a Comment

Popular posts from this blog

A Graphics Processing Unit (GPU)

A graphics processing unit (GPU) is a computer chip that performs rapid mathematical calculations, primarily for the purpose of rendering images. A GPU may be found integrated with a central processing unit (CPU) on the same circuit, on a graphics card or in the motherboard of a personal computer or server. In the early days of computing, the CPU performed these calculations. As more graphics-intensive applications such as AutoCAD were developed; however, their demands put strain on the CPU and degraded performance. GPUs came about as a way to offload those tasks from CPUs, freeing up their processing power. NVIDIA, AMD, Intel and ARM are some of the major players in the GPU market. GPU vs. CPU A graphics processing unit is able to render images more quickly than a central processing unit because of its parallel processing architecture, which allows it to perform multiple calculations at the same time. A single CPU does not have this capability, although multi...
Post a Comment
Read more

What's the difference between two-step verification and 2FA?

  The two terms, two-step verification, and two-factor authentication are synonymous, though the former is now being used more widely by the likes of Google, Microsoft, and Apple as it better conveys how the actual authentication process works. In the past, two-step verification was used to describe processes that used the same authentication factors, while two-factor authentication described processes that involved different factors, such as entering a password on a website and receiving a numerical code on a mobile device. Today, the two terms are both used to describe authentication that involves a secondary factor that is different from the first. Authentication is a vital element of access control and data security because users can be assigned access rights and be authorized to perform certain actions only after successful authentication is performed. The ways in which someone can be authenticated fall into three categories based on what is known ...
Post a Comment
Read more

Ghosting

Ghosting is to cease communications without notification. The use of the word "ghost" as a verb originated in social media in reference to dating, but the term is now used by employers to describe employees and potential employees who suddenly disappear. Typically, ghosting is used to describe: Job candidates who suddenly stop responding to messages. New hires who fail to show up for their first day of work. Employees who do not show up for a shift. Employees who leave work in the middle of the day and never come back. Some analysts blame ghosting on millennial entitlement. The reasoning is that members of the millennial generation have been brought up to feel they are special -- so special, in fact, that they do not need to follow conventional rules of behavior. Other analysts, however, maintain that ghosting behavior stems from changes in the job market and the phenomenon is simply a reflection of the laws of supply and demand in a healthy jo...
Post a Comment
Read more