Key Performance Indicators

Key Performance Indicators (KPI) are metrics used to help an organization define and evaluate how successful it is, typically in terms of making progress towards its long-term organizational goals.

KPI’s can be specified by answering the question, "What is really important to stakeholders?”. KPI’s evaluate business data against business goals and display current status by using easy-to-understand graphical indicators. For example, a KPI can use traffic light icons to indicate that customer satisfaction is exceeding, meeting, or failing to meet goals.

KPI’s are quantifiable measurements, agreed to beforehand, that reflect the critical success factors of an organization.

They will differ depending on the organization. A business may have as one of its Key Performance Indicators the percentage of its income that comes from return customers. A school may focus its Key Performance Indicators on graduation rates of its students. A Customer Service Department’s Key Performance Indicators could be percentage of customer calls answered in the first minute. A Key Performance Indicator for a social service organization might be number of clients assisted during the year.

Guidelines: refer to the posting Metrics

Categorization of indicators
KPIs can be summarized into the following sub-categories:
Quantitative indicators which can be presented as a number.
Practical indicators that interface with existing company processes.
Directional indicators specifying whether an organization is getting better or not.
Actionable indicators are sufficiently in an organization's control to effect change.
Financial indicators used in performance measurement

Are KPI’s and metrics interchangeable?
The term "metric" is generic. It is typically used to mean just about any sort of measurement applied to gauge a particular business process or activity. KPI’s are metrics, too, but they are "key" metrics. KPI’s are meant to gauge progress toward vital, strategic objectives usually defined by upper management, as opposed to the more generic metric used to measure a more mundane (i.e., less strategic) process. The goal is to foster greater visibility, better execution of strategy, faster reaction to opportunities and threats, and improved collaboration and coordination across key business operations

In previous posts, I had outlined SWOT analysis and setting strategy based on the analysis. KPI’s provide a way of measuring progress towards accomplishing the goals set by the strategy. In this post, I have outlined the definition and details regarding KPI’s and in upcoming posts, I will discuss performance management and evolution of balanced scorecards.

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