Key Performance Index: Frequently Asked Questions

What is the difference between a Key Performance Indicator and a Key Performance Index?

A Key Performance Indicator (KPI) is a singular measure used to quantify the performance of an individual, team, or organisation.

A Key Performance Index is an aggregate metric that combines multiple measures (Key Performance Indicators) into a single overview.

Key Performance Indexes are a great way to measure progress towards strategic goals in complex situations, quickly and easily.

Check out our Ultimate Guide to Brilliant Index KPIs for an in-depth definition.

What is the difference between a composite KPI and a performance index?

There is no difference between these two metrics. Composite KPI and performance index (or index KPI) are two different names for the same type of metric.

What are some Key Performance Index examples?

Here are some index KPI examples you have probably stumbled across without even noticing that they are index KPIs:

• • BMI - Body mass index. An indication of "lean-ness" in a single number
  • FTSE 100 - A stock exchange index showing how the UK stock market is performing
  • Credit score - using past credit behaviour to assess capacity and willingness to pay back lending
  • Activity "scores" used by fitness monitoring gadgets like the Apple watch

Check out our Ultimate Guide to Brilliant Index KPIs for more examples!

Why use index KPIs (Key Performance Indexes)?

Index KPIs are a powerful, underused way of combining multiple indicators into a single at-at-glance indicator. They are perfect for complex situations where rapid understanding and action are needed.

What are the best situations to use an index KPI?

The best situations to use an index KPI are when you want to...

• • Summarise complex situations with a single number.
  • Free up much-needed dashboard space without compromising on the mix of input data.
  • Be driven to think about how measurement entities interact (e.g., downtime, quality, and rate in the case of OEE - Overall Equipment Effectiveness).

By their very nature, index KPIs require more design and thought than other types of KPIs, but the benefits can be well worth the effort.

When should you not use index KPIs?

Performance indexes are blunt instruments. The exact scores vary depending on how they are designed, so you can't solely rely on them for 'big' decisions, especially when comparing minor differences between index scores.

They are good for 'at a glance' assessments, driving behaviour in the right direction, and trend analysis. But they can also be poorly designed, incorrectly weighted or unrepresentative. If you have any doubts about how an index works, you need to pull it apart, understand how it works and do some deeper analysis before using it to inform decision-making.

Situations where an index is a bad idea include:

• • The audience is a non-technical (or unsophisticated) crowd, so they may not be able to figure out how the index KPI works.
  • There is little evidence of a link between the various components of the index KPI/indicators.
  • The new index has not been properly explained to the target audience, or they don't trust it.

In short: don't blindly rely on performance indexes - use them as one piece of a larger puzzle. Consider other factors alongside them to get a fuller picture before making any decisions.

How many metrics should I use in my Index KPIs?

The number of metrics you use in your Index KPI should be based on the complexity of what you're measuring.

For example, if you're trying to measure healthy body weight, you might use a Body Mass Index (BMI), which combines just two metrics: Height and body weight

To measure the performance of a veterinary doctor, you may want to combine multiple different tracking KPIs, including:  

• • Mortality/morbidity rate
  • Utilisation (doctor) - fill rate
  • Invoice discount %
  • Customer referrals by existing customers
  • New complaints
  • Re-admission rates

You can combine as many KPIs as you want into an index, twenty or even thirty ingredient metrics, but you have to be extremely careful how you design the index when you have this many components. More KPIs increase the chance of an unexpected result in certain situations. For an index KPI of that complexity, it is essential to use a structured approach like the EPIK Design System.

How do you mix 'more is good' with 'more is bad' metrics?

Some measures are good when they have a 'high' value - think customer satisfaction, profit, or sales. Other KPIs can be a disaster when they increase, think complaints, regretted staff attrition, or late deliveries.

A number of methods can be used to combine these different kinds of KPIs, but they all boil down to 'reversing the polarity' of some of the ingredient measures. Put simply, be clear whether 'more is good' or 'more is bad' for the overall index KPI, then invert any ingredient KPIs that don't conform with this decision.

Should Key Performance Indexes have a maximum?

There are two types of index, ranged (e.g, Toyota Prius Eco score, out of 100) and open-ended (e.g., S&P 500, which has no upper limit). An index KPI can be either type, it's a case of choosing which makes sense for your particular situation.

Is it OK to mix leading and lagging indicators?

Lagging performance indicators are measures that tell you how you did, so are backward looking. Profit is a commonly used, important, lagging performance indictor. Leading indicators tell you how things will likely perform in the future, so give you a chance to take action before things happen. Customer satisfaction would be a leading indicator for repeat sales.

The most important thing with index KPIs is that they make sense. So if it makes sense to combine leading and lagging indicators then go ahead. For example a sales index might include both sale performance (lagging) and the sales funnel health (leading).