What is a KPI?
A Key Performance Indicator is a measurable value that demonstrates how effectively a company is achieving key business objectives. Organizations use KPI at multiple levels to evaluate their success at reaching targets. High-level KPI may focus on the overall performance of the enterprise, while low-level KPI may focus on processes in departments such as sales, marketing or a call center.
What makes a KPI Effective?
A KPI is only as valuable as the action it inspires. Too often, organizations blindly adopt industry-recognized KPI and then wonder why that KPI doesn’t reflect their own business and fails to affect any positive change. One of the most important, but often overlooked, aspects of KPI is that they are a form of communication. As such, they abide by the same rules and best-practices as any other form of communication. Deffinetly, clear and relevant information is much more likely to be absorbed and acted upon.
In terms of developing a strategy for formulating KPI, your team should start with the basics and understand what your organizational objectives are, how you plan on achieving them, and who can act on this information. This should be an iterative process that involves feedback from analysts, department heads and managers. As this fact finding mission unfolds, you will gain a better understanding of which business processes need to be measured with KPI and with whom that information should be shared.
Being SMART about your KPI
One way to evaluate the relevance of a KPI is to use the SMART criteria. The letters are typically taken to stand for Specific, Measurable, Attainable, Relevant, Time-bound. In other words:
- Is your objective Specific?
- Can you Measure progress towards that goal?
- Is the goal realistically Attainable?
- How Relevant is the goal to your organization?
- What is the Time-frame for achieving this goal?
Being even SMARTER about your KPI
The SMART criteria can also be expanded to be SMARTER with the addition of evaluate and reevaluate. These two steps are extremely important, as they ensure you continually assess your KPI and their relevance to your business. For example, if you’ve exceeded your revenue target for the current year, you should determine if that’s because you set your goal too low or if that’s attributable to some other factor.
Are KPI still relevant?
KPI often have a negative connotation associated with them. Unfortunately, many business users are beginning to see KPI monitoring as an obsolete practice. This is because KPI fall victim to that most human of all problems: lack of communication.
The truth is that KPI are only as valuable as you make them. KPI require time, effort and employee buy-in to live up to their high expectations.
Aida Tura Riera