What is KPI (Key Performance Indicator)?
A Key Performance Indicator (KPI) is a measurable value that demonstrates how effectively an entity is achieving key business objectives. Organizations use KPIs to evaluate their success at reaching targets. KPIs are used at multiple levels to evaluate their success in reaching targets. High-level KPIs may focus on the overall performance of the business, while low-level KPIs may focus on processes in departments such as sales, marketing, HR, or IT.
KPIs are critical tools in helping organizations understand whether they are on the right path toward achieving their strategic goals. They provide measurable evidence of how effectively a company has achieved key business objectives. Here are some benefits of KPIs:
- Strategic Management: KPIs are integral to setting strategic goals and measuring the organization's performance against those goals.
- Operational Improvement: They help in understanding and measuring the efficiency and effectiveness of operations.
- Employee Performance Enhancement: KPIs are often used to assess employee performance and are linked to performance incentives.
- Facilitate Decision Making: They provide a basis for decision-making and help focus attention on what matters most.
- Comparative Analysis: Allows organizations to compare their performance against peers or industry standards.
KPIs vs. Metrics
While both KPIs and metrics help track performance, not all metrics are KPIs. KPIs are metrics that are tied directly to strategic goals, making them key to the organization’s success. Metrics, on the other hand, may just measure the status of a specific business activity.
Types of KPIs
There are several types of KPIs that can be classified as follows:
- Quantitative Indicators: These are represented by numbers.
- Qualitative Indicators: These are descriptive characteristics, opinions, or properties.
- Leading Indicators: These predict future performance and help in forecasting.
- Lagging Indicators: These present historical data and show the results of actions.
- Input Indicators: Measure resources used during a process.
- Process Indicators: Measure the efficiency or productivity of a process.
- Output Indicators: Reflect the outcome or results of business activities.
Developing KPIs
To be effective, KPIs must be well-defined, quantifiable, relevant, and aligned with strategic goals. They should follow the SMART criteria—Specific, Measurable, Achievable, Relevant, and Time-phased. Organizations should ensure that KPIs are tailored to suit the specific needs and goals of their business.
Source:
https://www.qlik.com/us/kpi#:~:text=KPI%20stands%20for%20key%20performance,the%20organization%20make%20better%20decisions | https://www.investopedia.com/terms/k/kpi.asp | https://www.forbes.com/advisor/business/what-is-a-kpi-definition-examples/
