It’s tempting to over-complicate things when you try come up with a KPI Definition. The literal meaning is `key performance indicator’.
Just knowing what the initials stand for is not that helpful. So what does it really mean?
- Key means it… ‘provides a means of achieving or understanding something’.
- Performance means… `a particular action, deed, or proceeding’.
- Indicator means… ‘a thing that indicates the state or level of something’.
KPI Definition, in simpler language…
A KPI is a thing that:
- shows you how you are doing at…
- a particular activity…
- to achieve a particular level or outcome.
In fact, it’s pretty much exactly the same thing as a `measure’ or `metric’. The only real difference is the word `key’ implies that it is `really important’.
There are a couple of fundamental types of KPIs.
KPIs that measure real things.
- Number of customers
- Sales income
- Process output volumes
KPIs that are made up of a mixture of other measures
These are designed to give you a snapshot picture of complex situations. I call these ‘Composite KPIs‘. Examples of Composite KPIs include..
- BMI – Body mass index. It gives an indication of “lean-ness” in a single number
- FTSE 100 – A stock exchange index showing how the UK stock market is performing
- Weight Watchers Points – using a measure that mixes calorific content, fat and fibre content to give a “food healthiness score”
- OEE – Overall Equipment Effectiveness – A measure of efficiency that factors in quality, up-time and speed in production operations.
- Fitness “scores” used by fitness monitoring gadgets like Fitbit
- Eco Score on a Toyota Prius dashboard
This KPI definition doesn’t really get you any further forward on its own. The chances are that you need to improve something. If that’s the case the next step is to look at how to choose KPIs. You will find this article on creating KPI trees very useful if that’s what you need to do.
If you would like some specific KPI definitions, you can have a look at my KPI Wiki. It’s a small collection of common measures that have been defined in simple terms. If you need to create your own from scratch KPI Definition, then I’d recommend using this KPI Definition Checklist