Simple steps to establishing Key Performance Indicators

A key performance indicator (KPI) is a measure designed to track critical success factors in a business.  KPIs provide a statistical measure of how well an organisation is doing.  Having a few, clear, strategic KPI's rather than having many will be far more effective for the business and more achievable by its people. 

KPIs differ by industry, business and even departments within a business.

For example, a retail business may have as one of its KPIs

• the percentage of its income that comes from return customers, a school may focus on its KPIs on
• graduation rates of students,

and a Customer Service Department may have as one of its KPIs

• the percentage of customer calls to be answered in the first minute.

Whichever KPIs are selected, they must reflect the overall business goals, they must be key to its success, well defined and they must be quantifiable (measurable).

If a KPI is going to be of any value, there must be a way to accurately define and measure it.  'Generate more repeat customers' is useless as a KPI without some way to distinguish between new and repeat business.  'Be the most popular company' won't work as a KPI without some accurate method of establishing the company's popularity and comparing it to others.

You also need to set targets for each KPI.  For example, a manufacturing company's goal might be to reduce the cost of rework (fixing, repairing or even redoing an aspect of product) by 50%. 

After the KPI has been properly defined, and a way to accurately measure it has been set up, the KPI becomes a clear target that everyone's attention is focused on and they are clear on how they can achieve it.

Once you have your KPIs defined, what do you do with them?

You can issue KPIs as a performance management tool, but also as a carrot.  Post the KPIs everywhere, in the lunch room, on the company's intranet, even emailed to key team members.  Visibility of performance helps to create accountability.

Show the target for each KPI and the progress towards that target.  Some organisations even refer to the KPI summary or dashboard as the Company Scorecard.

TvA's Business Advisory Service can help you identify your KPI's, measure the outcomes and provide some accountability.  

Give us a call on 03 578 3386 to arrange a time to come in and discuss these vital tools for improving your business or check out theKPI workshop held at the end of June 2014.