1. Key Performance Indicators
Every time you visit your doctor, there are a few vital measures that are recorded…your weight, your
blood pressure, and your temperature. The measures give an overview of how well you are performing
physically. The numbers can be significant as stand-alone measures, but they are even more valuable
when analyzing the trends from visit to visit. With businesses, the amount of varying measures (like the
human body) can at times be overwhelming, so it becomes important to reduce complex reporting and
analysis by identifying the critical measures….the key performance indicators (KPIs).
KPIs not only assist management in seeing if a company is healthy, but ideally these measures can
provide leading indicators on the company’s future performance. In determining the KPIs for a
company, several things need to be considered including:
1). What are the critical success factors for the company?
2). How does management define success?
3). What are the strategic goals of the company?
4). What are the industry benchmarks/standards?
5). What life cycle stage is the company/industry currently in(growth, maturity, decline,
etc)?
It is very important to understand what indicators are required for learning and improvement. One
common misconception is that these indicators are strictly financial in nature. KPIs can be in many
different non-financial formats such as growth rates, ratios, or even simply raw numbers. For example,
if one of your strategic goals is growth or the building of a customer database, perhaps the number of
new customers is a KPI. In addition, some measures may be key risk indicators rather than key
performance indicators.
KPIs can be defined for the business overall or specific areas of the business such as marketing and sales,
productivity, procurement, customer loyalty, or quality performance. Once your company has identified
what should be measured, the next step is determining the frequency of measurement. There may be a
few measures that are reviewed weekly and/or monthly and then there may be additional measures
that are only reviewed quarterly and/or annually. In addition to giving you important insight into the
company’s performance at a given time, KPIs can also be extremely valuable in identifying trends,
variations, or seasonality of your business, thereby becoming a critical problem-solving tool for your
company. Another valuable exercise is to identify targets along with acceptable ranges for each
measure. By generating some KPIs for your company, you can quickly grade your company and not get
lost in details.