How To Identify Key Performance Indicators

Identify key performance indicators and make your life easier in the workplace. Key Performance Indicators or in short KPI's are the only true value to which you can measure performance against organizational goals.

• What is a Key Performance Indicator?
• What types of KPI's will you need in your workplace?
• How can KPI measurement be used?
• What are the criteria for developing Key Performance Indicators?
• Identifying Key Performance Indicators - Conclusion

What is a Key Performance Indicator?

Before you start, it is important for you to know what we mean when people talk about key performance indicators.

A key performance indicator is a measurable value that must be applied to a process in order to measure its compliance with key business objectives.

There are two different key performance indicators that must be used and these are high-level KPI and low-level KPI's.

The difference between the two indicators or that the High-Level KPI is used for measuring the organization's performance in a wider scope against its long-term goals and strategies.

Low-level KPIs are used to measure specific processes in crucial areas of the organization.

What types of KPIs will you need in your workplace?

You can break down the KPI into types of indicators such as financial and non-financial.

Financial KPIs are used to determine how well the organization is generating income and how it is performing against set financial goals and profits.

Non-financial are used for the measurement of people, machinery cycle times, and other process-related actions.

It is important to find key performance indicators that will benefit your organization. In order to do this you have to ask yourself the following questions:

• What are my business objectives and goals?
• What is a business long-term strategy?
• Which processes are important in reaching these goals?
• How can the measuring of these processes be changed for the benefit of the company through intervention?
• Will I be able to get the correct data through measuring?
• Who will benefit from and look at information extracted from data collected?
• How am I going to present the outcome of KPI measurement in order to create an overall understanding throughout the organization?
• Is consensus been reached with other parties in the organization on the use of KPI measurement?

How can KPI measurement be used?

Unless you intend to measure purely for your own benefit it is very important that other parties are on board and willing to accept the outcome of KPI measurement.

This is where low-level KPI measurement comes into play.

We can apply KPI measurement to certain individual departments in the company such as production, supply chain efficiency, call center, and customer care, sales output, and other focus areas.

For example:

A department manager in charge of sales will be interested in some of the following KPI's:

The rate of contact - I can reach how many customers within a certain time period?

The rate of new leads per month - How many potential customers are contacted?

Customer conversion rate - How many of these potential customers actually open accounts or make sales?

Customer lifetime value - Is the customer a long-term opportunity or is it a once-off purchase?

Customer profitability benchmarking - What are the company input cost vs the spending value of the customer?

These are just some examples to show how we can use KPI measurement in the sales department.

There are many more opportunities for creating key performance indicators that will assist management in the decision-making process that might follow.

What are the criteria for developing Key Performance Indicators?

Finally, in order to know what KPI's you can put into place it is necessary that you follow the commonly known S M A R T criteria.

• Specific
• Measurable
• Attainable
• Relevant
• Timebound

 

Specific

In order for a KPI measurement to work effectively it should target a specific outcome of a process. This can be outcome based on values such as time, quantity or monetary value after considering all input and output values that can affect the specific process targeted.

Measureable

Within the process there must be some value points available in order to make it measurable. These value points will normally be pre-determined targets set for the process to be considered a successful outcome.

Attainable

"Pie in the sky" expectancies will not work but if you apply the KPI method correctly, it will quickly be identified as an anomaly. If this is the case, you will think it cannot be measured but anything can be measured.

Relevant

Not to waste time and energy it is important to ensure the measurement results will provide you with the specific information relevant to what you are trying to visualize.

Timebound

All processes bound to key performance indicators must have a specific start and end time. Not having a consistent beginning and end will provide incorrect information that will be used incorrectly.

Identify Key Performance Indicators - Conclusion

I cannot stress the importance of identifying Key Performance Indicators enough as it contains the foundation of having accurate measurements against your goals.

Without KPI's you will never know how you are performing against targets and milestones you have set for yourself. These KPI's is also important for your employees as they now have something they can strive towards.

Positive Key Performance Indicators is a huge motivating factor for identifying workplace achievements where necessary.

 

Be sure to come back to productivity by design for our next post on " Using Key Performance Measurements Feedback"