A Key Performance Indicator (KPI) is a measurable value that demonstrates how effectively an organization is achieving its key business objectives. Companies use KPIs throughout the organization to evaluate their success at reaching targets. While high-level KPIs may focus on the overall performance of the business, low-level KPIs may focus on processes in departments such as sales, marketing, HR, support and others.
According to Tim Clairmont in Forbes’ article What Are Your KPIs, And Why Do They Matter?, setting just a few simple KPIs is a good way to create a common goal for your company. It will also keep employees from guessing and making assumptions about what’s really important.
Just like metrics, not all KPIs are created equal. To create a good KPI, it needs to have the 3 following characteristics:
- Quantitative – All KPIs are metrics, which by definition, are quantitative. This gives you a way to measure success. The KPI either needs to be increased, decreased, or maintained.
- Well-Defined – Specificity creates clarity. The more defined your KPI is, the clearer the picture of success.
- Aligned – Your KPI needs to be aligned to a key goal or objective in the business that is mission-critical for organizational success.
Writing Effective, Actionable KPIs
A KPI is only as valuable as the action it inspires. It is important to note that while many resources exist for industry standard KPIs, in order for a KPI to be effective and affect positive change, it must be customized to your business and its strategy. Look at your KPIs as a form of communication. Short, clear, and relevant information is much more likely to be absorbed and acted upon.
1. Establish a clear objective.
If a goal of the business is to be the 'market leader', then a KPI objective maybe to 'increase revenue by 10% this financial year' or 'Expand our product lines to 20'. State clearly, and in simple terms the purpose of the KPI. This provides guidance for anyone viewing the KPI to interpret the data in the correct context.
2. Outline the criteria for success.
What will the target be? Is it attainable? when should it be accomplished? and how will progress be monitored? Targets should be realistic, changes to business processes take time to implement. In the initial stages of KPI monitoring it's best to focus on long-term targets with midterm monitoring.
3. Collect the data.
Investigate the availability and accuracy of the data. Data may be available automatically from existing systems or hidden in reports and databases. This data will all need to be pulled together at regular intervals for reporting in one central place.
4. Build the KPI formula.
Some KPIs contain but a single metric or measure. However most rely on a combination brought together under a single calculated formula. For example, a KPI that measures productivity in revenue by machine would look like this: Total Revenue divided by the total number of machines. Build formulas and create calculations with test data to see if the results are what you would expect.
5. Report on your KPIs.
To efficiently communicate your KPIs you'll need to translate the data into understandable visuals such as graphs and charts. Dashboards for Operational KPIs, or Reports for Strategic KPIs offer a convenient way to create, track and distribute your KPIs.
KPI Tracking, Management and Reporting
As Peter Drucker famously said, “What gets measured gets done.”
Once your KPIs are selected, having a proper mechanism in place to track them will be crucial.
In addition to the status of the KPI, it’s critical to understand how it’s trending. KPIs rarely improve on their own. Also, it's important to layer in what initiatives have been completed and will be completed towards improving the KPI.
Successful organizations pair the quantitative elements of KPIs with qualitative information. They combine the “what” with the “why”. The “why” provides the context on the trending of a KPI.
Having a tool that easily enables this will make your progress updates informative and actionable, improving the likelihood that you will reach your goals. You'll find your all-in-one KPI and strategy management solution in Spider Impact.
Spider Impact for KPI Management, Tracking & Reporting
Spider Impact makes it easy to set goals for your KPIs, track them over time, and visualize your performance to improve outcomes. With Spider Impact, you can:
Track KPIs: Everyone in your organization needs to see your latest key performance indicator data. Spider Impact gives it to them anytime and on any device. Plus, Spider Impact automatically rolls up your weighted KPIs to larger key performance areas so you can see how well you’re executing your overall strategy.
Monitor Your Critical Data: Dashboards show your performance at a glance. You can add charts, gauges, text, images, and more. If you want more information, just click to drill down to underlying data, performance trends, and comments.
Create Interactive Executive Briefings: Assemble your strategy maps, reports, and dashboards into a multi-slide briefing. It's like PowerPoint, but with live data. As you advance through slides, your data is fully interactive—and now your executive meetings will be as well.