KPI Definition and how it is being used to improve Performance

A lot of business owners seek to increase the productivity of their employees and businesses by focusing on proficiency and efficiency. Many of them are being challenged with this task and strive for new and effective ways to gather the information needed to achieve their goals.

One of the ways by which an employer can understudy the goals and objectives of a company and the proficiency and efficiency of employees is via the use of KPIs. KPI, also known as Key Performance Indicator is a metric system that is used to measure the performance of an organization and its employees, with respect to meeting their set goals. A company’s proficiency can be measured using KPIs. This way, one can know if the company is making progress or not, identify areas that need improvements, and provide avenues for such improvements to be made.

For example, an organization that focuses on providing optimum customer service support can implement a KPI that helps identify the number of requests from customers that are not satisfied at the end of the business week. With such a KPI, such an organization would be able to identify key areas that need to be worked on to ensure that all customers requests are being satisfied. Each organizational level has its own KPIs that are used to identify certain goals and objectives within that level. The essence of a KPI is to connect an organization’s operations to its goals. Where such goals are not being met, continuous adjustments are being made until they are achieved… and after they are being achieved, KPIs are still needed to maintain a high standard of the workflow within such an organization. However, for you to be able to use a KPI efficiently, it is important that your goals and objectives are realistic and feasible. When implemented properly, KPIs can help improve an organization’s business strategy and achieve set goals.

HOW DO YOU SET ORGANIZATIONAL KPIs?

For you to effectively set KPIs for your organization, they must measure up to the right business process for each aspect of the organization. For example, to understand the financial performance of a business, its net profit can be used as a KPI. The total revenue generated by the business can be calculated, excluding the total expenses, which can be used to measure how well the business is performing. The greater the net profit, the greater the performance of that business. It may be difficult to calculate complex KPIs. For example, a Telecom company that needs to find out how satisfied its customers are would need to use customer satisfaction KPI. However, it is easier said than done as a well-constructed customer survey would be needed to generate the right amount of data used for such evaluation. It is advised that you do not have too many KPIs. The ideal number of KPIs that are needed to measure key areas of business ranges between four and 10. The KPIs that are needed are those that effectively measure your organization’s performance against your goals and objectives.

HOW DO YOU SET SMART KPIs?

In setting KPIs for your organization, you need to ensure that they are SMART. What this implies is that they must be:

  • Specific: You need to understand the clear areas that they KPIs are needed to measure and what makes those areas vital.
  • Measurable: The KPIs should be able to measure up to a set organizational standard.
  • Achievable: Are your goals feasible? Can the KPIs help you realise realistic goals that have been set? These are questions that must be asked before you commence with the KPIs.
  • Relevant: You must ensure that set KPIs are used to achieve an important cause that enhances the performance of your business or organization.
  • Timeframe: Can your business goals be achieved via the use of KPIs within an allocated timeframe? If yes, then you are on the right path; otherwise, you need to review your goals.

For you to have an ideal KPI, it should be able to meet these criteria. For example, a company may want to increase the number of satisfied customers it gets at the end of the year to 30% using the SMART rule. For you to be able to define the KPIs that would be used in your organization, you need to understand the following:

  • Your organization’s vision and the strategy implemented towards achieving it.
  • The metrics that serve as indicators in monitoring the successful achievement of one’s vision and strategy.
  • The number of metrics that would be needed.
  • The benchmark that would be used to measure up the metrics.
  • Factors that may flaw the metrics and how you can avoid such.

HOW DO YOU MANAGE YOUR KPIs?

It is necessary that you make plans for the amount of information that will be needed for you to set your KPIs. For example, the set of data that you will be required to gather for customer satisfaction evaluation is different from that you will need for net profit. They would also require the use of different systems to generate KPIs. Additionally, you need to be keen on the person that would be assigned to gather such data and how often it must be gathered. Data involving sales can be gathered on a daily basis, while complex data that are being gathered from multiple sources may need to be measured either weekly or monthly.

For you to achieve the best results, it is important to vet the collected data and ensure that they are accurate and embed all that is needed for your KPI. It is important to relate your KPIs to your employees or teammates. They should be aware of the impact of each KPIs to their respective departments, and what activities need to  be executed. The progress of each department can be measured by the use of a balanced scorecard or a performance dashboard, which you will set up alongside with the KPIs. With that, you can measure the overall performance of your organization.

If you love to know more about how effective KPIs are to individual and organizational growth, please visit this link: KPI meaning.

Author: Eddy

Eddy is the editorial columnist in Business Fundas, and oversees partner relationships. He posts articles of partners on various topics related to strategy, marketing, supply chain, technology management, social media, e-business, finance, economics and operations management. The articles posted are copyrighted under a Creative Commons unported license 4.0. To contact him, please direct your emails to editor.webposts@gmail.com.