This step defines good and bad performance, and determines how the data is used. Performance is based on targets, the desired level of performance for a specific reporting period, and thresholds, the upper and lower limits of desired performance around a target value. Thresholds create the exact points where an indicator displays green for good performance, yellow for satisfactory or red for poor.
Figure 8 shows an example of targets and thresholds. The Performance Measure Data Definition Table, developed by each objective ownership team, documents the essential information comprising every performance measure on a scorecard.
This is a critical step for transitioning from performance management system development to implementation and use. Data definition is especially important if the organization plans to use a performance management or business intelligence software solution to report performance information for decision making.
Consistent and thorough data definition makes the software implementation much easier and faster and the decisions based on the collected data more reliable. Download eBook. Keep your teams aligned: Whether measuring project success or employee performance, KPIs keep teams moving in the same direction. Provide a health check: Key performance indicators give you a realistic look at the health of your organization, from risk factors to financial indicators. Hold your teams accountable: Make sure everyone provides value with key performance indicators that help employees track their progress and help managers move things along.
Types of KPIs. Strategic: These big-picture key performance indicators monitor organizational goals. Executives typically look to one or two strategic KPIs to find out how the organization is doing at any given time. Examples include return on investment, revenue and market share. Operational: These KPIs typically measure performance in a shorter time frame, and are focused on organizational processes and efficiencies. Some examples include sales by region, average monthly transportation costs and cost per acquisition CPA.
Functional Unit: Many key performance indicators are tied to specific functions, such finance or IT. While IT might track time to resolution or average uptime, finance KPIs track gross profit margin or return on assets. These functional KPIs can also be classified as strategic or operational. Leading vs Lagging: Regardless of the type of key performance indicator you define, you should know the difference between leading indicators and lagging indicators.
How to Develop KPIs. This will help you define KPIs that are relevant and valuable to business users. While they may be related to a specific business function like HR or marketing, every key performance indicator should tie directly back to your overall business goals. This is why data literacy is so important. When people understand how to work with data, they can make decisions that will move the needle in the right direction. Plan to iterate: As your business and customers change, you may need to revise your key performance indicators.
Perhaps certain ones are no longer relevant, or you need to adjust based on performance. Be sure you have a plan in place to evaluate and make changes to key performance indicators when necessary. Avoid KPI overload: Business intelligence has given organizations access to mounds of data and interactive data visualization , making it easy to measure anything and everything.
Keep in mind that the key performance indicator definition refers to the most important targets. Steer clear of KPI overload by focusing on the most impactful measures. Lagging indicators help you understand results over a period of time such as sales over the last 30 days. Leading indicators help you predict what might happen based on data, allowing you to make adjustments to improve outcomes.
Increase data literacy in your organization so everyone works toward strategic targets. Educate employees, assign them relevant KPIs, and use a best-in-class BI platform to keep everyone making decisions that move your business forward.
Iterate: Keep your key performance indicators current by revising them based on market, customer and organizational changes. Meet regularly to review them, take a close look at performance to see if adjustments need to be made, and publish any changes you make so teams are always up to date.
Take a deeper dive into using these three steps:. KPI Examples. Finance Sales Marketing. IT Customer Service. Working Capital Ratio. Their actual weight is a lagging indicator, as it indicates past success, and the number of calories they eat per day is a leading indicator, as it predicts future success.
Some inputs include the coffee suppliers, quality, storage, etc. My process measures could relate to coffee making procedure or equipment efficiency or consistency. Outputs would focus on the coffee itself taste, temperature, strength, style, presentation, accessories, etc. And desired outcomes would likely focus on customer satisfaction and sales.
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