What is a Key Performance Indicator?

Key performance indicators (KPIs) are crucial for effective performance management and ultimately provide our critical measures of how the business is performing.

KPIs are a set of easily understood performance measures, which show at a glance how well someone or something is performing:

Individual performance

Team performance

Regional performance

Overall, KPIs should give everyone throughout the business a simple, impartial view of performance and how it is changing over time. The act of making performance visible encourages people to try to improve it, as well as highlighting when performance is dropping off.

KPIs are usually available in weekly and monthly reports. They are the organisational equivalent of the set of dials on your car dashboard to tell you how fast you are going, how much fuel you have left, etc.

In summary KPI’s give management and staff an objective measure of current performance:

Measures of performance

  • Highlight deviations from plan/average
  • Comparison and benchmarking
  • Improvement potential
  • Goal setting

Drive performance improvement

  • Track progress towards goals
  • Justify effort and investment
  • Motivate
  • Record improvement
  • Recognition

Effective KPIs

What makes a KPI effective?

Balanced in the behaviours they driveNeeds to be balanced between quantity and quality measures as appropriate because if we have unbalanced KP ls it may force undesirable behaviour that ultimately detracts from the organisation’s goals and objectives.
Short interval of controlBy managing indicators within a short interva I of control (i.e. checking them as frequently as is appropriate} we can react to any variation in our KPls to ensure that our performance is back on track within acceptable timescales.
Variation leads to actionIt is important that when a KPI varies from target, average or
expectations, it leads to actions.
Aligned to challenging but achievable targetsIt is pointless having unrealistic targets. However it is key that we stretch our performance to a level which we know will be achievable.
Clear, simple, visible presentation, showing trends graphically against targetsTo aid interpretation and understanding of performance it is important that KPls are clear, simple, well presented and illustrate trends.
Measure performance that is within the control of those being measuredAlways ensure that a KPI which we measure is within our control.
Balanced in the behaviours they driveNeeds to be balanced between quantity and quality measures as appropriate because if we have unbalanced KP ls it may force undesirable behaviour that ultimately detracts from the organisation’s goals and objectives.
Short interval of controlBy managing indicators within a short interva I of control (i.e. checking them as frequently as is appropriate} we can react to any variation in our KPls to ensure that our performance is back on track within acceptable timescales.
Variation leads to actionIt is important that when a KPI varies from target, average or
expectations, it leads to actions.
Aligned to challenging but achievable targetsIt is pointless having unrealistic targets. However it is key that we stretch our performance to a level which we know will be achievable.
Clear, simple, visible presentation, showing trends graphically against targetsTo aid interpretation and understanding of performance it is important that KPls are clear, simple, well presented and illustrate trends.
Measure performance that is within the control of those being measuredAlways ensure that a KPI which we measure is within our control.

The minimum requirements for successful use of KPIs in the workplace are:

  • Accountability for performance
  • A system(s) for gathering and analysing performance
  • KPIs which are at least 80-90% reliable
  • Feedback on performance
  • Recognition of successful performance
  • Training and coaching in necessary skills and knowledge to perform well

Who uses KPIs

KPIs are influenced at all levels of the organisation but are most profoundly affected by levers that are situated at advisor and Team Leader level.

Information available through Operational Management Information Systems is tailored depending on the audience as it is used for different purposes. The diagram below shows the link between different levels of management in the business and some key areas of focus that each level has. Because of the different focus areas, different levels of information are required. Senior managers will tend to use the balanced scorecard to understand where exceptions exist at site / operations area level, whereas Team Leaders have individual advisor reports available to them to manage variance in the performance of their advisors.

Who uses KPIs

Benefits of Key Performance Indicators

Some of the realised benefits encountered by organisations increasing their productivity include the following:

For the Organisation

  • Trend analysis
  • Benchmarking
  • Reaction to changing condition
  • Focus on success factors
  • Better use of resources and cost reduction

For the Individual

Standards for performance

If performance is measured, reasonable achievable standards can be set, and individuals and teams know what is expected of them and know if they are meeting those expectations.

Increased accountability

If it’s easy to see how well an area is running, accountability can be devolved to lower levels as any problems will show up straight away and can be tackled.

Recognition

This comes with increased accountability – if an individual’s area is running well, they get the recognition and possibly material rewards such as promotion.

Evidence of improvements

He productivity measurements show objectively if an area is improving or not.

Motivation

Visible performance measures and standards increase motivation to improve – nobody goes to work deliberately to do a bad job.

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