A key performance indicator, KPI in short, is a term known in almost every organisation. They are used in every organisation, throughout the organisation. However, if used incorrectly they can quickly lose their added value and even create confusion. In order to avoid this from happening we outline 5 best practices related to KPI definition and usage.
CHOOSE THE RIGHT KPI'S
It is nice to define KPI's for everything you can measure. However it is not very productive. When defining KPI's there are certain things you need to take into account. The first and foremost is that you should ask yourself whether you can actually measure the KPI you want to define accurately without too much effort (over time). If not, you should ask yourself the question, if the time spent on this isn't better spent doing something else. When defining a KPI, you also have to make sure it is aligned with the (strategic) objectives of the organisation. This way it can be used on every level inside the organisation and everyone can work towards a common goal. The following 4 steps will help you during this process.
Start with an end in mind: determine the first overall business objective you want to achieve.
Clearly understand the current situation that will serve as a baseline.
Define the right KPI to track the performance improvement you want to achieve.
Set up a target setting & tracking of your KPI.
HAVE A CLEAR DEFINITION
Ever been in the situation where you are talking about something with a colleage or a friend while using the same terminology, but after a while you realise you are both talking about something else? Well, this happens a lot with KPI's as well. For this reason, it is crucial that a KPI has a clear definition and that this definition is well known and understood throughout the entire organisation.
ALWAYS INCLUDE A VARIANCE
It's nice to have a KPI set, but without something to measure it too, it doesn't contribute to growth in the organisation. A comparison can be made versus last year, or last month, to see howmuch you have improved (or not). Based on this, you can start influencing the parameters which make up the KPI and reach your goals. A KPI can also be put versus a target up front, this will allow to give direction throughout the organisation while still allowing the managers to have the freedom needed to do their thing.
HAVE A MIX
When defining KPI's it is important to look at the entire organisation. Make sure you include some KPI's in different domains. You can easily combine financial, management & operational KPI's in order to get a full view on your organisational health & performance. You will be able to dig deeper into the different KPI's if needed and you will also notice patterns between the different domains inside the organisation. From that point, you can start to play with all these different KPI's to make simulations or a high level target setting for your next budget round.
DON'T GO OVERBOARD
While it is important to include KPI's from different domains over the entire organisation. You must also make sure that you keep the list of KPI's concise and manageable. After all, when there are too many KPI's you will lose the feeling with the KPI's itself and they just become numbers in a list.
When applying focus it also easier to give a clear direction to the organisation of where you want to go.
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