What is a KPI?
What is a KPI? The dull, “you can find it anywhere” answer is “Key Performance Indicator”
That’s not really very helpful. So what does it really mean?
Key means it’s a thing that “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”
Put in simpler language: A KPI is a thing that shows us-
- how we are doing
- at a particular activity
- to achieve a particular level or outcome
Very often people will link a measure to the organisational strategy and call those measures KPIs. KPIs can be used to evaluate performance, help decision making when improving a business and for comparisons between businesses.
Where situations are too complex to express with a simple “single variable” KPI we sometimes use “Composite KPIs” – Composite KPIs are measures which combine a two or more other measures to indicate performance. OEE (Overall Equipment Efficiency) is one used very commonly in manufacturing. BMI (Body Mass Index) is another used in health and you often see “indexes” used in financial markets (like the FTSE100).
- Be clear and easy to understand.
- Be numeric and tangible.
- Encourage behaviours that have a positive effect on the business.
- Be owned by those that influence their outcome.
- Be something that focuses a team on a common goal.
KPIs should not
- Be ridiculously hard to compile, taking valuable resources away from other activities.
- Be used as a weapon for political ends.
- Be confusing, ambiguous or discredited.
- Cause people to find “a way around” to make the number look good or drive self-defeating behaviours (See this article- The science of setting targets for a great example of this backfiring!)
If you have been tasked with creating KPIs you may find this guide useful – Creating KPIs and using measurement to improve your business. If you already have KPIs here’s a checklist to help you define your KPIs and make sure you haven’t missed anything.
Need some specific help? Contact Bernie