6 KPI Selection Traps to Avoid

Are your KPIs unwittingly holding you back? Most businesses think tracking any metric is better than none, but picking the wrong KPIs can be more damaging than not using any at all. Let's go over 6 common KPI selection traps you need to avoid.

banana skin as a metaphor for KPI selection traps

Why KPIs Matter

To understand why key performance indicators (KPIs) matter, we first need to know why organisations exist. Every organisation—whether it’s a business, a nonprofit, or a government group—has specific goals. These could be making money, providing public services, or driving social change. These goals are called strategic objectives, and the plan on how to reach them is the organisation’s strategy.

Since these objectives are usually big and broad, it can be hard to track progress towards them. To make this clearer, we break down these big goals into smaller, actionable and measurable indicators. KPIs are those indicators—they give us a clear picture of how the organisation is performing. By measuring KPIs, we can see how close the organisation is to reaching its goals and delivering value to its stakeholders.

So, now we understand why KPIs are so important in any organisational setting. Every organisation should be monitoring its own key metrics to make sure it is always moving closer to its goals.

Why KPI Selection Matters

There are many different types of organisations, such as:

Private Sector: Sole proprietorships, companies
Public Sector: Government agencies, state-owned enterprises
Nonprofit Organisations (NPOs): Charities, foundations, NGOs

With so many types of organisations, the range of strategies—and even more so, KPIs—is huge.

This leads to a key challenge: how do organisations choose the right KPIs and satisfy their stakeholders? This is the problem our founder, Bernie Smith, helps solve. He’s written two books offering solutions: Getting Started with KPIs for small- to medium-sized organisations, and KPI Checklists for larger organisations.

However, many organisations don’t know this solution exists. Faced with the overwhelming task of KPI selection, they use shortcuts. These shortcuts are traps because although they might feel like a quick fix, they often lead to confusion, frustration and ineffective metrics later. Let’s look at Bernie's 6 common traps to avoid.

6 KPI Selection Traps to Avoid

Here are some really bad ways to choose the metrics your organisation uses and reports on:

Trap #1: Interesting measures
People are driven by curiosity and that's great, but it can lead to overload. I once worked with a call centre that had 128 KPIs because they couldn’t bring themselves to leave any out. This happens when you don’t clearly understand how your measures drive your strategy. To fix this, use KPI Trees—check out our Ultimate Guide to Building KPI Trees for help.

Trap #2: What’s easiest
We’re all guilty of taking the easy route sometimes. Often, we choose whatever measure is most accessible, instead of the one we really need. But taking shortcuts can leave big gaps in your dashboards and reports. Rather start with your strategic objective and work backwards. Then, compare your ideal measure with what's available. This will help you evaluate if those “easy” measures are really the best fit.

Trap #3: What IT or Finance chose for you
IT or Finance often control the most comprehensive systems in an organisation, like JDE Edwards or SAP. They tend to roll out measures they think are useful, but these often miss the mark. The problem? These reports are shaped more by the software’s quirks than the organisation’s real needs (and they also suffer from Trap #2). If you’re looking at 30 pages of dense text tables, you know exactly what I mean. Here are 3 free KPI dashboard templates that you can build from instead.

Trap #4: Firefighting leftovers
During a crisis, it's common to have meetings where you (or one of your managers) demand hourly progress updates. This kind of pressure often creates micro-monitoring KPIs that stick around long after the problem is solved. Ask yourself: how many of the "essential" measures you use now are actually outdated or irrelevant?

Trap #5: What your customers ask for
Clients or customers often demand KPIs, reports, and dashboards. A lawyer friend of mine shuddered at the mention of KPIs because they have to report them to their clients. While it's fine to meet customer demands, make sure you’re not confusing their reporting needs with your own. Don’t just rely on client-requested KPIs; make sure you’re using the right ones for your business too.

Trap #6: What your competitors use
Off-the-shelf KPIs? Beware. You need KPIs that reflect your strategy, not your competitor’s. If you copy theirs (ahem, sorry, “follow best practice”), the best you’ll get is their metrics—and even that’s not guaranteed. Instead, develop your measures by working backwards from your own strategic objectives to end up in the right place. You can use KPI Trees to do this.

Why Businesses Must Choose the Right KPIs

Choosing the right metrics is essential because using the wrong ones can waste time and resources, leading to missed opportunities. For example, a private company aiming to maximise profit shouldn’t track the same KPIs as a government agency focused on public service. Every organisation needs to watch KPIs that align with its specific strategy and goals.

Tracking the wrong metrics can cause businesses to focus on things that don’t really matter. Take a company monitoring website traffic—if their real goal is to increase sales, what they should focus on is how many of those visitors actually make a purchase. The right KPIs keep the team focused on what’s important, ensuring time and resources are spent where they’ll have the biggest impact. This leads to better decision-making and smarter growth.

If you're ready to dive deeper, check out our Ultimate KPI Guide. It’s packed with useful insights, from basics such as understanding leading indicators vs lagging indicators to Bernie's 7 principles for developing effective KPIs. Whether you're just starting or looking to refine your approach, this guide will give you the tools to set KPIs that really work. Let us help you get it right the first time!