Key Performance Indicators (KPIs) are business metrics used to evaluate factors that are critical to the success of an organization. They are one of the most important measures you can use to ensure your organization is on the right path and achieving its objectives. Your business doesn’t need a lot of KPIs, but it is important to carefully select, report, and take action from the handful you choose.
Because each business is different, your set of KPIs will be unique to your organization and should be based on how you define success. Here are 10 tips to select the right KPIs for your business and use them effectively:
- Select the metrics that will best help you evaluate how well you are doing against your business objectives, making sure they will help you define and measure progress towards your goals.
- Effective KPI metrics should translate complex measures into a simple indicator that will allow you to quickly assess your current situation and make changes, if needed.
- The set of KPIs you select should be meaningful at all management levels within the organization, so that your management team is all on the same page.
- KPIs should represent a holistic view of the organization; they should not only measure specific metrics in areas such as finance or sales, but they should take into account other aspects such as process capabilities and people issues.
- Make sure you don’t end up with too many KPIs. It will take your focus away from effective use and devolve into an exercise of data collection, leading to “analysis-paralysis.”
- It would be beneficial to report actual KPIs against planned targets and industry best practices, which will create an ongoing learning environment for your management team.
- Selected KPIs should be based on accurate and timely data; “garbage in, garbage out” applies here!
- KPIs should be easy to understand and should lead to action. They should not be so complicated that they require further analysis.
- KPIs should be reviewed at management meetings to make sure everyone is on the same page about what is important to the business.
- There should be tangible consequences for all involved, such as linking management compensation to the success or failure to meet agreed KPIs.
Recent improvements in transactional systems, ease of data access, and reporting tools such as dashboards, along with greater availability of industry best practice data, have all made it easier than ever to implement and continuously monitor an effective set of KPIs. Having an effective KPI management system, in turn, enables you to create a strong performance-based culture in your organization.
Have you identified an actionable KPI scorecard for your business?
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