What is a KPI? Measure your performance against key business objectives.

       

  key performance indicator (KPI) is a type of performance measurementKPIs evaluate the success of an organization or of a particular activity in which it engages. Often success is simply the repeated, periodic achievement of some levels of operational goal (e.g. zero defects, 10/10 customer satisfaction, etc.), and sometimes success is defined in terms of making progress toward strategic goals. Accordingly, choosing the right KPIs relies upon a good understanding of what is important to the organization. 'What is important' often depends on the department measuring the performance – e.g. the KPIs useful to finance will differ from the KPIs assigned to sales. Since there is a need to understand well what is important, various techniques to assess the present state of the business, and its key activities, are associated with the selection of performance indicators. These assessments often lead to the identification of potential improvements, so performance indicators are routinely associated with 'performance improvement' initiatives. A very common way to choose KPIs is to apply a management framework such as the balanced scorecard.             

How to define a KPI

Defining a KPI can be tricky business. The operative word in KPI is “key” because it every KPI should related to a specific business outcome. KPIs are often confused with business metrics. Although often used in the same spirit, KPIs need to be defined according to critical business objectives. Follow these steps when defining a KPI:

• What is your desired outcome?
• Why does this outcome matter?
• How are you going to measure progress?
• How can you influence the outcome?
• Who is responsible for the business outcome?
• How will you know you’ve achieved your outcome?
• How often will you review progress towards the outcome?

As an example, let’s say your objective is to increase sales revenue this year. You’re going to call this KPI your Sales Growth KPI. Here’s how you might define this KPI:

• To increase sales revenue by 20% this year
• Achieving this target will allow the business to become profitable
• Progress will be measured as an increase in revenue measured in dollars spent
• By hiring additional sales staff, by promoting existing customers to buy more product
• The Chief Sales Officer is responsible for this metric
• Revenue will have increased by 20% this year
• The KPI will be reviewed on a monthly basic Examples of common departmental KPIs
• As noted above, KPI examples can be used to provide guidance, but you need to consider the specific goals and processes associated with your organization before adopting a template. These examples illustrate KPIs for several different departments.
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• Marketing and sales

  Some examples are:
  1. New customer acquisition
  2. Demographic analysis of individuals (potential customers) applying to become customers, and the levels of approval, rejections, and pending numbers
  3. Status of existing customers
  4. Customer attrition
  5. Turnover (i.e., revenue) generated by segments of the customer population
  6. Outstanding balances held by segments of customers and terms of payment
  7. Collection of bad debts within customer relationships
  8. Profitability of customers by demographic segments and segmentation of customers by profitability 
  Many of these customer KPIs are developed and managed with customer relationship management software.
  Faster availability of data is a competitive issue for most organizations. For example, businesses which have higher operational/credit risk (involving for example credit cards or wealth management) may want weekly or even daily availability of KPI analysis, facilitated by appropriate IT systems and tools.

  Manufacturing

  Overall equipment effectiveness is a set of broadly accepted non-financial metrics which reflect manufacturing success.
  • OEE = availability x performance x quality
  • Availability = run time / total time, by definition this is the percentage of the actual amount of production time the machine is running to the production time the machine is available.
  • Performance = total count / target counter, by definition this is the percentage of total parts produced on the machine to the production rate of machine.
  • Quality = good count / total count, by definition, this is the percentage of good parts out of the total parts produced on the machine.
  • Cycle time, this is the total time from the beginning to the end of the process. Cycle time includes process time, during which a unit is acted upon to bring it closer to an output, and delay time, during which a unit of work is spent waiting to take the next action.
  • Cycle time ratio (CTR) = standard cycle time / real cycle time
  • Utilization
  • Rejection rate

  IT operations

  • Availability / uptime
  • Mean time between failure
  • Mean time to repair
  • Unplanned unavailability
  • Average time

  IT project execution

  • Earned value
  • Estimate to complete
  • Labour spent / month
  • Euros spent / month
  • Planned euros / month
  • Planned labour / month
  • Average time to delivery
  • Tasks / staff
  • Project overhead / ROI
  • Number of new customers
  • Planned delivery date vs actual delivery date

  Supply chain management

  Businesses can utilize KPIs to establish and monitor progress toward a variety of goals, including lean manufacturing objectives, minority business enterprise and diversity spending, environmental "green" initiatives, cost avoidance programs and low-cost country sourcing targets.
  Any business, regardless of size, can better manage supplier performance with the help of KPIs robust capabilities, which include:
  • Automated entry and approval functions
  • On-demand, real-time scorecard measures
  • Rework on procured inventory
  • Single data repository to eliminate inefficiencies and maintain consistency
  • Advanced workflow approval process to ensure consistent procedures
  • Flexible data-input modes and real-time graphical performance displays
  • Customized cost savings documentation
  • Simplified setup procedures to eliminate dependence upon IT resources
  Main SCM KPIs will detail the following processes:
  • Sales forecasts
  • Inventory
  • Procurement and suppliers
  • Warehousing
  • Transportation
  • Reverse logistics
  Suppliers can implement KPIs to gain an advantage over the competition. Suppliers have instant access to a user-friendly portal for submitting standardized cost savings templates. Suppliers and their customers exchange vital supply chain performance data while gaining visibility to the exact status of cost improvement projects and cost savings documentation.

  Government[edit]

  The provincial government of Ontario, Canada has been using KPIs since 1998 to measure the performance of higher education institutions in the province. All post secondary schools collect and report performance data in five areas – graduate satisfaction, student satisfaction, employer satisfaction, employment rate, and graduation rate.