A KPI is a key measure that focuses on an aspect of an organizations performance that is deemed critical for it’s success.
A mistake that a lot of organizations make is they call every measure a KPI. Not every measure is a KPI, there may be many performance indicators used by organizations but not all will be Key to the organizations success. Carry on using other performance Indicators that are helpful, just don’t elevate them to the status of Key Performance Indicators.
When larger organizations are Developing KPI’s I would recommend an external facilitator who has experience implementing Key Performance Indicators. Certainly you will require someone, if not a team, who is dedicated to the task.
The Top 10 Characteristics of KPI’s
Acted on by the CEO and Senior management: By their definition Key Performance Indicators are critical to the organizations success and should therefore be monitored by those most senior in the organization. Moreover if they are out of line they should be acted on by those people, immediately. It greatly enhances the effectiveness of KPI’s if employees know senior management is paying attention to them and if they are out of line they can expect a phone call asking the reasons.
Measured frequently and reported timelyKPIs should be looked at hourly, daily or weekly but never monthly. Bearing in mind these are indicators that are Key to the success of your organization, looking at an indicator mid way through a month for the previous month means you could be looking at something that went wrong as long as 6 weeks ago! The events are no longer fresh in peoples minds so learning from it is limited and if any damage was taking place it will have carried on for 6 weeks before anyone even knows, by the time you get around to doing anything about it the damage is done, it’s history.
Contain Predictive IndicatorsIn a similar vein to above, you don’t want to be reacting to all your important indicators after they have become history. We are all most familiar with past metrics but it is important to develop some, not all, but some future focused indicators. A good example is sales. If an organization monitors its sales only, by the time sales are dropping off the problem is already entrenched. If the organization monitored the number of successful cold calls taking place then it can predict further ahead what the end sales figure will look like. If there is a problem with cold calls they can react to it before sales are dropping off and the reps have no pipeline of sales calls coming through.
AccountabilityThe performance of a KPI should be ‘owned’ by an individual or a group who is accountable for it. Without accountability measurements are meaningless. Thus it is vitally important that individuals are aware that they are accountable for a KPI’s performance, but also that they be trained in how to interpret the indicator, know exactly what it is telling them, but also have sufficient authority to take whatever corrective action is necessary to bring the indicator back in line with expectations. How well individuals have done in relation to their respective KPI’s should be included in their PERFORMANCE REVIEW.
AlignedKPI’s should always be aligned with the company’s mission and strategy. When DEVELOPING KPI’s the mission, strategy and critical success factors should all be clear and the KPI’s flow from them.
Few in NumberKPI’s should rather focus on a few high value, critical to success indicators than scatter peoples attention and focus with a myriad of indicators. It is a simple fact that we cannot focus on too many things at once, the more indicators that are used the less focus and attention people will be able to pay them. A rule of thumb is there should be no more than 10 Key Performance Indicators.
Reinforced with IncentivesOrganizations can magnify the impact of KPI’s by attaching compensation and incentives to them. However they should be cautious when doing this, there are many horror stories of staff causing many negative unintended consequences in order to attain targets. Before applying incentives the KPI should already have been tried and tested in the field.
Context DrivenIt is important to give a KPI context by applying targets or thresholds otherwise it can mean very little to the end user. Is a number good or bad? People won’t know unless the number is given a context.
StandardizedThis is very important the larger the organization is. KPI’s must mean the same thing across different departments, you cannot have certain departments defining activities differently to others otherwise reporting on them stops making any sense and they become impossible to reconcile.
RelevantA KPI has a natural lifecycle. When first introduced the KPI should energize the workforce and get focused attention so that performance improves. As time passes and targets are achieved people lose focus on it and get bored, therefore it must be refreshed, revised of discarded. Organizations therefore need to continually review their KPI’s.
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