The ABC’S of Effective KPI’s

KPIs, or Key Performance Indicators, are metrics used to track the performance of a business, a department, or individuals against goals. When designed and implemented properly they can define the direction of a business, provide essential feedback and help organize individuals, teams, projects or entire businesses to optimize performance. The key is to choose the KPIs relevant to your industry and business goals — focusing on the wrong ones is costly to your company.

One of the most effective ways of evaluating effectiveness and appropriateness of a KPI is considering the ABC’s of the KPI:

Aligned to Objectives

The most effective KPIs are closely tied to strategic objectives and help answer critical business questions. Therefore, a good starting point is to identify the questions that the decision makers, managers, or external stakeholders need to have answers to. Start with the basics and understand what your organizational objectives are, how you plan to achieve them, and who within the organization can act on this information for each outlined goal. The key is to define KPIs that effectively track to that business goal and to scrutinize existing KPIs for relevance to objectives.

Balanced

When selecting KPIs, it is very important to have a clear picture of how the organization is performing, and balancing KPIs will provide a complete overview of organizational performance. Balancing implies selecting KPIs that complement one another. The main balancing approaches refer to ensuring that we measure both:

       ·        Quantity and Quality;

       ·        Subjectivity and Objectivity;

       ·        Efficiency and Effectiveness.

Context-Driven

Effective metrics need to be relevant to individual employees. Relevance ensures the right decision makers are responsible for measuring specific KPIs — increasing the likelihood of a successful outcome.

Decisive

The purpose of having KPIs is to drive action that affects results. Many times I find that companies track, measure and report on a boatload of KPIs every week, but there are only a handful that ever cause anyone on the team to take action. This is a big waste of time for those responsible for collecting and reporting the data, and can easily cause a team to overlook the few that really do matter.

Easy to Understand

A KPI should be simple, straightforward and easy to measure. Everyone involved in a goal should be able to recognize their role in enacting a KPI. If a goal is clear, staff can make practical decisions that lead to achieving the desired outcome.

Few in Number

Having too many KPIs can result in what I call KPI overload. So many organizations think that by having 8-10 KPIs per department, they will be better able to assess the performance of the company. WRONG. (K.I.S.S. Keep it simple, stupid!)

Truth is: when you have 100 KPIs, no one has the time or energy to look at every one of them. All of the sudden, those KPIs become redundant to the company.

Gains Momentum

While KPIs will vary, it is especially important to consider the big picture and think about what’s needed to lead your business to success. Measuring that success is particularly important. It helps you determine if your company is gaining momentum and if your hard work and investments will pay off in the long run.

Has Ownership

It’s imperative that you have clear accountability for how your data is acquired, how it’s being reported on, and who can speak to what occurred during that reporting period. This way, your data truly tells a story, and you can understand why the numbers are the way they are.

Incentive-Driven

It’s no use building business KPIs for the sake of it. Managers should want to build business KPIs that positively affect the company. As such, not only should they be easy to understand, but employees should also know how to achieve an effective outcome. Setting unachievable goals can be a big de-motivator for employees. The more realistic the goal of a KPI is, the more likely teams are to reach it. Employees must be able to look at those metrics and see how they influence those things.

There are thousands of KPIs to choose from and most companies find it hard to select the right ones for their business and instead end up measuring and reporting a vast amount of information on everything that is easy to measure. It’s important to determine which measurements in your business are indicators of true performance. Paying close attention to those measurements, your KPIs, can help identify areas of success and areas for improvement.

In today’s challenging and competitive business landscape it is more important than ever that business leaders and senior executives are able to make better informed decisions, improve performance, and seek out new and novel ways to gain the edge over their competition. KPIs, when properly understood and used effectively, provide a powerful tool in achieving just that. Without them, organizations are simply sailing blind.