Updated: Nov 6, 2020
Key Performance Indicators (KPIs) are quantifiable metrics used by organizations to measure performance success towards a defined goal.
KPIs can assist in reviewing processes efficiencies, align them toward an expected result, assess whether or not we are on the right track, and eventually produce the desired outcome with tangible results. If properly defined, KPIs can reduce or eliminate the potential for goal misalignment, instructions misunderstanding, or below expectations approvals. If poorly defined, KPIs can show results disjoined from what you were trying to accomplish in the first place. Let’s not forget KPIs should not be generic or universals. KPIs should reflect your specific business model, processes, capacity, risk appetite, goals, and acceptable expectations.
Let’s review a few recommendations that should be top-of-mind when creating your Key Performance Indicators.
The first step in developing successful performance metrics is to have a solid understanding of the business. It is imperative to know what are the key drivers that can make your business successful.
Next, let’s breakdown the business into the most important processes. After that is done, each key process should be further separated into business-critical tasks and supporting activities. KPIs should be focused on those tasks that would halt the business if not performed as expected.
Once you have identified those key elements that will be necessary to keep your business functioning and moving forward, it will be important to define desired results at each critical point of the process/tasks to ensure management’s expectations will be met.
After the desired results have been identified, the key will be to define/create and implement quantifiable goals that are mapped to the mission-critical processes and should be attained to achieve success. These goals need to consider the overall business and not just the highly visible areas.
It will be as important to select the appropriate system to measure the successful completion of the thoughtfully designed goals. The system should be easy to follow, organized, and capable of generating insightful results in the format of concise reports, graphics, aggregated and detailed data, and able to show % of completion towards the goal.
Many organizations fail during this design process because they create metrics primarily focused on financial measures that do not show a complete picture of what drives the business. As a result, the information obtained from poorly designed metrics does not provide insightful information to make informed and strategic decisions.
Another common pitfall is trying to implement the so-called “industry KPIs” without assessing direct linkage to your business processes. Industry KPIs can be used as references and not as defining metrics to measure our business success.
It is highly recommended to engage subject matter experts (SMEs) as trusted advisors to consult with the day-to-day business operations owners. The advisors will provide technical expertise to extract what really matters from the business. KPIs should provide management with key information on what matters to the business, not the low-level details of mundane transactions. Knowledgeable business owners will become key contributors to these types of engagements. Business owners will provide a full view of the mission-critical processes as well as their business solid understanding of what might require process improvements.
The collection of well-structured key performance indicators should describe what it takes to be successful in the business and how to achieve strategic goals. The design of KPIs should not be taken lightly. Remember to involve the right level of resource expertise during the design process and you will increase the level of success and the expected results.
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