KPI or Key Performance Indicators - Learn How To Design, Fill With Data And Use

by Sam Miller - Date: 2007-04-11 - Word Count: 502 Share This!

KPI term is for key performance indicators, the KPI concept is about measuring and controlling business performance focusing on the most important performance indicators. Does this concept works? How to make use of it?

There might be a number of viewpoints on KPI, and this concept can be used on various level of organization. For instance, CEO might use KPI to measure and control business, also, some managers can design and use KPI for their department.

Does KPI approach work? Yes, in sense, it gives you a necessary information structured and represented in a certain way, but how good does it work? It depends on who have designed your KPI, who is gathering data to be inputted in KPI system, how do you analyze and use this data.

First, the most important is KPI design. Fill the difference between indicators that represent the total company profits per month, company profits segmented by regions and company profits segmented by region, customer education, customer social position. It's obvious that these tree metrics are good for different views only, for instance, CEO might be interested in total profit only, while regional manager need to know how other regions are performing.

Other sample of bad indicators set is when there are two indictors telling about the same thing from different viewpoints. For instance, it is bad idea to have "Profits by region" indicator and "Support requests by region". It seems that having two indicators will show something about the regional office, but actually it is not true, as both indicators depends on the regional characteristics, such as the number of potential customers and the number of leads. When designing key performance indicators one should consider factors to be connected with root indicator, but not with each other.

Even if you have a great KPI system, it will not work, if the incoming data won't be analyzed, sorted and represented correctly. It's important to make sure that the person who will be analyze and represent information for KPI also involved in KPI design process and know what is the goal of certain metrics and why it was used some metric and not the other one.

Working with well designed and prepared KPI system is an easy task. But still one should remember about limitation of KPI system. It is not designed to show your business in details, also, it just represents someone's viewpoint on how the business processes should be organized. It is important to keep KPI system up today, as what worked yesterday will not show anything today.

Finally, few words about tools that can help to design KPI system. There are some expensive business systems that allow to work with KPI, but still these systems will not help to design and keep updated KPI indicators. So, before purchasing expensive system consider designing a test version using some spreadsheet software, such as Excel. Give KPI concept a try, find out if it works for your business and in what way. Having requirements list you will be able to get what you really need.

Related Tags: key performance indicators, kpi, balanced scorecard

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