Key Performance Indicators

Key Performance Indicators

Understand KPIs

Sometimes referred to as KPIs, key performance indicators commonly cover important aspects of an organisation's or an individual's accomplishments in a given time period. If you get confused by what key performance indicators are all about, then you are not alone. They often include things like:

  1. Business indexes. An index of something allows you to compare it to previous periods, so a KPI index might be counting how many sales leads are converted in a month or the number of weeks that have gone by without a production error.
  2. Financial indicators. Common in commercial businesses, financial KPIs include things like turnover, sales figures and purchase ledger expenditure.
  3. ROI. This stands for return on investment and is a KPI that is commonly used to measure the results of marketing activity.
  4. Customer retention. This key performance indicator is used in many types of business, but is particularly associated with the retail sector where holding onto customers is vital for repeat business.
  5. Satisfaction metrics. Sometimes financial indicators don't reveal everything about customers' thoughts so gaining data on how satisfied or otherwise they feel is a much-used KPI in customer service departments.
  6. Call times. Many companies operate with phone calls even if they don't have a call centre. Waiting and call length times are typical KPIs for organisations which talk to their clients by telephone.
  7. Ticket analysis. Anyone who works in IT or a help desk environment will recognise this way of measuring performance. It helps to describe the number, range and complexity of enquiries handled.
  8. Back order rates. This KPI is used in warehouses to help improve supply chain performance. It focusses on how often orders cannot be immediately fulfilled from stock.

There are many more types of KPI and some of them are unique to their sector. Indeed a good number are put together for just a single employee and manager to measure a certain procedure and might not even be given a proper name. It is a good idea to get to know the common ones in your line of work.

If you are being interviewed for a job and the subject of KPIs comes up, then don't be put off. You cannot be expected to know all of the organisation's own KPIs because they tend to alter as business needs change. What you do need to understand is the principle behind them.

Understanding KPIs

By measuring something it is possible to establish whether you are on target to meet a goal within a given period or not. This is what a KPI should do.

Remember that financial and business index KPIs tend to be easy to measure because they are numeric. However, a KPI can be something less quantitative, such as satisfaction or happiness. Despite this a method for measuring these qualitative indicators needs to be set out in advance for the indicator to work.

In many cases, an opinion is asked in the form of a score out of ten in order to measure a KPI in a meaningful way. By using an approach like this, all KPIs should be measurable in manner that makes sense for all concerned. In numerous companies in the UK, KPIs are only used if they are considered to be SMART.

SMART key performance indicators

If a KPI is said to be SMART, then it must be:

  • Specific. It has to be unambiguous and not overlap with other KPIs.
  • Measurable. It must be consistently quantifiable whichever method is used.
  • Agreed. It has to be seen by all parties concerned as a fair indicator.
  • Realistic. It cannot set impossible-to-achieve targets or goals.
  • Time related. It has to have a start and end date which are agreed in advance.

Managers and employees often set SMART KPIs at an annual performance review or an appraisal, but they can be used at any time by mutual agreement. Understanding your KPIs and where you are with them can help you to focus on important tasks and make sure your appraisal goes well.

Key performance indicators are also used by senior executives to set measurable goals for departments and divisions within larger organisations. Sometimes individual KPIs will contribute to team ones which can then feed into departmental ones. Remember that your own measurable contribution is part of how a larger organisation ultimately performs.