What is a Key Performance Indicator (KPI)?
How to ensure that we are on track to achieve our goal? By checking the values of KPIs – Key Performance Indicators.
KPIs, Key Performance Indicators, are all financial and non-financial metrics that help evaluate the performance of ongoing activities. Their value, measured over a given time and expressed in numbers, is feedback on whether the set goal has been achieved. We apply KPIs to many business areas, including marketing, sales, human resource management, and manufacturing processes.
Setting goals alone is only half the story. Effectively monitoring progress in achieving them is no less significant. KPIs are the specific numbers selected from the noise of other data. They provide a quick way to know and evaluate the current status of a given goal, making it easier to prioritize activities and make decisions.
There are different KPIs for each industry, and we can use them to measure the performance of various activities. We can categorize them, for example, as strategic and operational. Strategic KPIs are usually indicators to measure long-term goals, such as a company's revenue over a year. Operational KPIs focus on performance and processes and measure them over shorter periods, such as a department's monthly sales performance. Another classification is the distinction between financial and non-financial KPIs. ISO 22400 specifies how to define and use KPIs.
Employees within a team may use different KPIs to determine whether they will meet their personal goals. However, there are some common characteristics that all types of KPIs have.
KPIs should always relate to previously set goals.
KPIs must be clear and specific so that the process of achieving the goal can be quickly evaluated using them.
The value of KPIs must be quantifiable and measurable.
KPIs must be time-bound, i.e., that the achievement of the goal is measured in a specific time frame.
You can't measure goal achievement using KPIs that exclude each other.
There is no „one and right” set of KPIs that applies to every company and every team. Setting KPIs is strictly driven by the goals to be achieved.
We've compiled some best practices below that make it easier to select KPIs to fit the needs of your team and company.
Set company-wide strategic goals, team goals, and personal goals for individual employees. Subgoals should help achieve the company's main goals.
To measure each goal, choose a KPI according to the principle that it should be measurable, objective, not conflicting with other indicators, and easy to calculate and explain.
The number of indicators measuring the goal can't be too high, as the name suggests – they are to be the key ones.
KPIs should match the company's stage of development and the industry in which it operates.
Indicators must have specific standards for a given period, so we're aiming for result X in Y time. Standards must be precise to avoid situations of manipulating the result.
Indicator standards should be updated periodically to motivate the team to achieve better results. Standards should always relate to the stage of development of the company.
Select indicators that will reflect the results of one's efforts.
Team members should be introduced to KPI methodology – they should know their metrics and be able to track KPIs.
KPI is a methodology that is great for supporting strategic business management. Once you've chosen the right metrics for your goals, it's worth considering how to track them effectively. And this is where the right software comes to the rescue. It can be a separate application created just for measuring KPIs or a module in your HRM system where you can check the data visualizations, filter the data and analyze KPIs.
KPI monitoring software:
allows quick access to results from different periods;
allows you to filter the KPIs of the whole company by the owners (team members) or by KPI types;
allows you to efficiently track process of achieving a goal;
helps to understand the process and identify problems to implement corrective actions;
allows the HR department to manage employee performance and respond more quickly to performance declines.
In addition, the collection of data in a system or a tool helps plan strategies for future periods, enables extensive analysis, and improves the work of the HR department by automating repetitive activities.
Once you've set goals and selected KPIs accordingly, all that's left is to work effectively and measure. Monitoring KPIs regularly will give you access to always up-to-date strategic data, facilitate your decision-making, and increase the performance and motivation of your team. They will allow your HR department to manage the performance of each employee and react if it appears that the achievement of goals is at risk.