Key Performance Indicators (KPIs) should be the vital navigation instruments used by managers and leaders to understand whether they are on course to success or not. The right set of KPIs will shine light on performance and highlight areas that need attention. Without the right KPIs managers are flying blind, a bit like a pilot without instruments.
The problem is that most companies collect and report a vast amount of everything that is easy to measure and as a consequence their managers end up drowning in data while thirsting for insights.
Effective managers understand the key performance dimensions of their business by distilling them down into the critical KPIs. This is a bit like a doctor who takes measures such as heart rate, cholesterol levels, blood pressure and blood tests to check the health of their patients.
In order to identify the right KPIs for any business it is important to be clear about the objectives and strategic directions. Remember, navigation instruments are only useful if we know where we want to go. Therefore, first define the strategy and then closely link our KPIs to the objectives.
I believe KPIs have to be developed uniquely to fit the information needs of a company. However, what I have leant over many years of helping companies and government organizations with their performance management and business intelligence is that there are some important (and innovative) KPIs everyone should know about. They will give you a solid base of knowledge. However, there will be other, more specialized measures designed for your specific strategy or industry context. Take for example the network performance KPIs for a telecom operator or the quality indicators for healthcare providers. These will have to be included in your list of KPIs but will not be found in the list below, at least not in their industry-specific format.
The list of 75 KPIs includes the metrics I consider the most important and informative and they make a good starting point for the development of a performance management system. Before we look at the list I would like to express an important warning: Don’t just pick all 75 – You don't need or indeed should have all 75 KPIs. Instead, by understanding these 75 KPIs you will be able to pick the vital few meaningful indicators that are relevant for your business. Finally, the KPIs should then be used (and owned) by everyone in the business to inform decision-making (and not as mindless reporting references or as 'carrot & stick tools').
To measure financial performance:
1. Net Profit
2. Net Profit Margin
3. Gross Profit Margin
4. Operating Profit Margin
5. EBITDA
6. Revenue Growth Rate
7. Total Shareholder Return (TSR)
8. Economic Value Added (EVA)
9. Return on Investment (ROI)
10. Return on Capital Employed (ROCE)
11. Return on Assets (ROA)
12. Return on Equity (ROE)
13. Debt-to-Equity (D/E) Ratio
14. Cash Conversion Cycle (CCC)
15. Working Capital Ratio
16. Operating Expense Ratio (OER)
17. CAPEX to Sales Ratio
18. Price Earnings Ratio (P/E Ratio)
To understand your customers:
19. Net Promoter Score (NPS)
20. Customer Retention Rate
21. Customer Satisfaction Index
22. Customer Profitability Score
23. Customer Lifetime Value
24. Customer Turnover Rate
25. Customer Engagement
26. Customer Complaints
To gauge your market and marketing efforts:
27. Market Growth Rate
28. Market Share
29. Brand Equity
30. Cost per Lead
31. Conversion Rate
32. Search Engine Rankings (by keyword) and click-through rate
33. Page Views and Bounce Rate
34. Customer Online Engagement Level
35. Online Share of Voice (OSOV)
36. Social Networking Footprint
37. Klout Score
To measure your operational performance:
38. Six Sigma Level
39. Capacity Utilisation Rate (CUR)
40. Process Waste Level
41. Order Fulfilment Cycle Time
42. Delivery In Full, On Time (DIFOT) Rate
43. Inventory Shrinkage Rate (ISR)
44. Project Schedule Variance (PSV)
45. Project Cost Variance (PCV)
46. Earned Value (EV) Metric
47. Innovation Pipeline Strength (IPS)
48. Return on Innovation Investment (ROI2)
49. Time to Market
50. First Pass Yield (FPY)
51. Rework Level
52. Quality Index
53. Overall Equipment Effectiveness (OEE)
54. Process or Machine Downtime Level
55. First Contact Resolution (FCR)
To understand your employees and their performance:
56. Human Capital Value Added (HCVA)
57. Revenue Per Employee
58. Employee Satisfaction Index
59. Employee Engagement Level
60. Staff Advocacy Score
61. Employee Churn Rate
62. Average Employee Tenure
63. Absenteeism Bradford Factor
64. 360-Degree Feedback Score
65. Salary Competitiveness Ratio (SCR)
66. Time to Hire
67. Training Return on Investment
To measure your environmental and social sustainability performance:
68. Carbon Footprint
69. Water Footprint
70. Energy Consumption
71. Saving Levels Due to Conservation and Improvement Efforts
72. Supply Chain Miles
73. Waste Reduction Rate
74. Waste Recycling Rate
75. Product Recycling Rate
What do you think? Do you find this list useful? Are there others you would add? Or do you have wider comments on KPIs and how they are used?
What are Key Performance Indicators (KPIs)?
KPIs help us to measure how well companies, business units, projects or individuals are performing compared to their strategic goals and objectives. Well-designed KPIs provide the vital navigation instruments that give us a clear understanding of current levels of performance.
KPIs as navigation tools
Just like on an ocean-liner, where the captain and crew need navigation data to understand where they are relative to their planned sailing route. Indicators like GPS location data, speed, fuel levels, or weather information allow the team in charge to make decisions about where to steer next.
This is exactly the same for companies or government organisations. Here, KPIs are the vital navigation tools that managers use to understand whether the business is on a successful voyage or whether it is veering off the prosperous path. The right set of KPIs will shine light on the key aspects of performance and highlight areas that may need attention. Without the right set of KPIs managers are sailing blind.
The problem with selecting the right KPIs
The trouble is that there are 1000s of KPIs to choose from and companies find it hard to select the right ones for their business. Managers mostly struggle to identify the vital few management metrics and instead collect and report a vast amount of everything that is easy to measure or simply pick the KPIs everyone else seems to be using. The other extreme is where companies, business units, project team or individuals have little or no KPIs to understand their performance levels.
Our research finds that less than 10% of all the metrics that are collected, analysed and reported in businesses are ever used to inform decision-making. 90% of the metrics are wasted, or worse, used to drown people in data while they are thirsting for insights.
KPIs as key decision-making tools
Effective decision-makers and managers understand that they need information on the key dimensions of performance and that this can be achieved by distilling them into the vital KPIs. Similarly to the way a doctor would go about trying to understand someone's health. Instead of measuring random things a doctor would focus on key health measures first, such as body mass index, cholesterol levels, blood pressure, and sugar levels.
In our organisations, the most effective KPIs are closely tied to strategic objectives and help to answer the most critical business questions. A good starting point is therefore to identify the questions that the decision-makers, managers or external stakeholders need to have an answer to. One or two so-called Key Performance Questions (KPQs) should be identified for each strategic objective.
Once the most important business questions have been articulated it then allows companies to select or develop the right KPIs that best help answer them. That way all KPIs will be strategic, relevant and meaningful.
To learn more about KPIs and metrics browse our free KPI library, read our books, articles and case studies or get in touch if you would like to discuss our KPI consulting or training services.
Key Performance Indicators (KPI) are type of performance measure usually associated with organisational performance rather than individual performance. KPIs are frequently used to determine progress towards strategic goals and objectives. They can also be used to monitor the ‘repeated’ success of an operational goal. In either instance it is vital to understand what is important to the organisation.
Systems like QuickScore can be used to manage and monitor Key Performance Indicators.
KPIs used in sales will be very different to KPIs used in operations. It is important to select a consistent set of KPIs that work both for the owning department and contribute to an organisations goals and strategy. This is usually achieved through the use of a management framework methodology such as the Balanced Scorecard. Key Performance Indicators should not be confused with general business metrics. The clue is in the use of the word Key. The thing that makes a KPI different to a metric is that it is ‘key’ to the success of the objective or goal that is being measured.
A Key Performance Indicator is something that can be counted and compared; it provides evidence of the degree to which an objective is being attained over a specified time.
The definition above includes a set of words that need further explanation to ensure the statement is fully understood:
Counted: This may seem a little trite, however, counted means that a quantity can be assigned. That is, a number or value. It does not mean a percentage achievement. One of the most frequent mistakes in setting performance measures is to create a project and assess its success through how much work has been done. Just because an e-mail marketing campaign has been active for 3 weeks out of four does not mean it has been a success. Success is dependent on the outcome not the activity.
Compared: A number or value may be interesting but it only becomes useful when it is compared to what is optimal, acceptable or unacceptable. Every performance measure must have a comparator or benchmark. Using an industry benchmark gives an objective quality to the comparator, objectivity is not required, but it is desirable.
Evidence: The evidence will fall out by counting and comparing correctly. It is important to strive for a measure that will be observed in the same way by all stakeholders. The evidence should be clear and have specific meaning.
Objective: A performance measure only has significance if it is contributing to an objective. If there is no objective, why is it being measured in the first place? This does not mean we should ignore all operational measures; they still need to be in place, but even as sub-measures they should still contribute to the objective.
Specified Time: Everything is time bound; progress towards meeting an objective and therefore a strategy must be measured over a specified period of time.
The golden rule: Key Performance Indicators are based on objectives/goals. If a KPI exists and it is not based on an objective or a goal then it is serving no useful purpose. Let’s be clear here though. There may be many other metrics in the organisation that provide information, for example cost metrics as part of a profit and loss statement, but these are not KPIs.
Why is it important to make the distinction?
When running a business or organisation, whether big or small, it is impossible to keep track of everything. The executive team has to be selective. First and foremost the executive team has a duty to ensure the health and longevity of the business. This being the case they must look at the key indicators that contribute to the objectives and goal.
Much in the same way a doctor will look at the key indicators such as pulse and temperature and blood pressure to determine the health and longevity of a patient. In both cases this may result in drilling-down to underlying information if the key indicator is not within prescribed tolerances.
This brings us neatly to an area that is often forgotten when creating KPIs: setting comparative thresholds. The actual value of the measure has to be compared to what would be considered good, bad or indifferent. The thresholds could be based on previous performance or on a notional future performance or even a made-up value. By providing thresholds, alerts can be set if a upper or lower thresholds are breached. More meaningful historical data can be kept, providing all important trend information to help in any decision making process.
Where to start? Don’t start with key performance indicators! Good KPIs come as a result of understanding where to take an organisation or business. It is imperative to understand where you want to go before deciding how you will get there. Once clear objectives and goals have been agreed, then meaningful KPIs can be generated.
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