Key Performance Indicator (KPI)
What is a KPI?
A KPI, which stands for Key Performance Indicator, is a way for businesses, organizations or individuals to measure how much progress has been made over time and whether they are on track to reach their goals. Broadly speaking, KPIs provide information about performance levels in relation to the strategic targets that need to be met.
Why are KPIs important?
While extremely useful for evaluating overall performance, a KPI is also helpful when setting goals in the first place. This is because a KPI can be used as a navigational tool, outlining which performance levels are expected and needed to achieve results. Whether being used in the decision-making process or, later, as yardsticks to measure whether performance levels actually match where they need to be, KPIs help bring about improved performance levels and overall effectiveness.
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Types of KPIs
As there are numerous types of KPIs, businesses and individuals often find it difficult to choose the right one(s) for their purposes. As the name implies, a KPI is only useful if it provides “key” and relevant information about your specific professional or personal performance levels. This means you need to be sure that you are using the right KPI. Otherwise you’ll get data that is inaccurate or irrelevant, which will erroneously inform your strategic decision-making.
The following are examples of the most popular types of KPIs.
High-level - focuses on a business’s overall performance
Leading - focuses on predicting trends or changes, as well as forward looking and help to manage the performance of a system or process
Lagging - focuses on measuring performance of a business or project after they follow a trend or pattern; is used to verify trends in the long term
Strategic - focuses on monitoring trends or progress regarding an intended result
Operational - focuses on a quantifiable factor that expresses the business performance within a short time frame.
Financial - focuses on a measurable factor that shows how a company is doing with regard to generating profits and revenue.
Sales - focuses on the factors by which you will evaluate your team's performance against your sales and organizational goals.
How to Define the right KPI?
When defining a KPI, it should be associated with a specific outcome that has an accompanying performance measure. A KPI needs to be defined according to critical or core objectives. The following are some questions to consider when identifying a KPI:
What is the intended outcome?
Why is this outcome important?
How will progress be measured?
How can you influence the outcome?
Who is responsible for the business outcome?
How will it be known when the outcome is achieved?
How often will overall progress be reviewed?