The purpose of Key Performance Indicators (KPI's) is to indicate how your performance compare to your declared key business goals.
In practice we should use our KPI's as our guiding stars towards achieving our most important goals. This involves actively using them as a tool for improvement.
Great KPI's are
1. Critical to your success
If we base our KPI's on metrics that aren't critical to the success of our business, we risk misfocusing our improvement efforts. I've heard the sentence "Well we have room for 5 KPI’s so we need to come up with a few more" a few times and every time i cringe. If we are unable to explain exactly why a KPI is critical to our success then it probably isn't.
2. Influenceable by employees
Being able to steer our improvement efforts in the direction towards business success is the whole point with KPI's. Being able to actually influence what we measure is a fundamental principle of a good KPI.
Influenceable KPI's will increase motivation and organizational understanding of the employees.
3. Applicable in practice
We must be able to use the KPI's as a tools for guiding our improvements in the right direction. Therefor we need to create an environment where resources are prioritized to doing just that. Employees must be allowed to spend time on actually working with improving the result of the KPI's.
4. SMART
The SMART model for goal setting is a great model to help us define KPI's that are: Specific, Measureable, Achieveable, Relevant and Timely.
Ensure that your source of data is reliable and valid.
Final Words
A key performance indicator is, when used correctly, a powerful tool for identifying opportunities for improvements and directing those efforts towards the most critical business parameters.
When working with KPI's always make sure that your employees understand why those specific KPI's are critical to the success of your business.
If what you measure is transparent and easy to relate to, the chance of success dramatically increases.
What else could be added to the list?
- Henrik Kjærulff
