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Key Performance Indicators

Updated on December 19, 2010

KPI

KPI - key performance indicators
KPI - key performance indicators

Key Performance Indicators (KPI)

Every business differs from each other. Complicated structures that businesses are compounded of, have main influence on strategy’s success. On them depends the whole enterprises’ existence. The thing is to control them all and make them cooperate to gain as good results as possible. As long as thousands of possibilities and ways are being used, there is also a tendency to simplify and make them more effective and accurate. The real rating of enterprise’s performance was a necessity. Therefore, every company needs to have its own set of metrics that show the essence in an easy way.
They’re called ‘Key Performance Indicators’ and became one of the most important and useful ideas in the world of business intelligence.

KEY PERFORMANCE INDICATORS

GENERAL

Indicators must explain reader in a comprehensible way the general rate of enterprise performance without overwhelming the results with insignificant details.

SPECIFIC

Indicators must be chosen in a way that allows reader to deduct the real source or reason that led to formed problems and to predict the probable solutions.

What are the ‘Key Performance Indicators’?

In essence, they are a step further that has been made to improve efficiency of performance ratings. The KPI's, even different for every company, generally work on the similar base. The first thing that diversifies used indicators is their destination – other should be assigned to dashboard application, other to reports and other to remaining tools. A careful selection is very important. Omitting it may cause a significant worsening of rating quality. Secondly, what seems obvious but not always really is, the KPIs must apply to the real conditions of a company’s success. Even best marginal rates will not cover the lacks of the main ones. Thirdly, the Key Performance Indicators should be chosen in a way that enables slight movements from particular measurements to more general ones – the thing is to occupy the compromise between legibility and usefulness.

KPI in real life

Although the KPIs seem to be complicated, most people meet them just after they’re born. The Apgar score (used to assess health of the infant) is based on indicators’ method. Another example? A man comes up against it just a few years after he’s born - the school report card he gets after finishing the semester. It includes not a single marks from every test, but the marks recapitulating progress according to the whole subject. More pointedly: that doesn’t inform how far you can spit, but how well you know the multiplication table.


KPI and the business

What do Key Performance Indicators mean to business? It is still about rating the profitability of enterprise. The times of simple firms with clear accountancy have irrevocably passed. Nowadays, most companies are complex systems with at least a few departments. It is necessary to have a certain method of rating if their cooperation provides intentional advantages or whether the firm strategy guides in the right direction. Generally, strict results of sale and income may suggest some tendencies but they will never show the dependencies – only a simplified view based only on hints. It’s like rating a national education system by counting people able to read and write – 90% is a nice result. Until it comes out that this amount is created mostly by the seasonal workers and the remaining 10% - indigenous inhabitants – are analphabets. But the general feeling suggests that the national education system does not need to be improved. That was an extreme example, as good as measuring the car health by the maximum speed that it can reach going down the hill. You can beat the speed records, driving old Chevy faster than the newest Bugatti Veyron (up the hill) – but does it mean that Chevrolet is better? No. And – what’s more – that doesn’t even mean you still have your engine, gears still work or the breaks are not broken. It’s a good way but for measuring the height of the hill. There are some other indicators necessary to find out the car’s health.

Let’s move back to business. The KPIs allow to measure the success of particular processes – rating of the whole company is usually used only in addition or comparison. The popularity of KPIs grows every day. Newer and improved indicators enable to measure the company performance more and more accurately. The technology replaces a human. Larger and more accurate databases and data flow rationalize the enterprise management.

There are thousands of different indicators specialized for concrete companies. These below are only the examples:

· Cycle time

· Rejection rate

· Status of customers already existing

· New customers acquired

· Potential customers amount

· Turnover

· Sale tendencies

· Percentage of reclamations

· Time necessary to achieve help from a customer call center

What’s worth noticing, not all the indicators refers to money. As well as counting the income, the time needed or differences between sale periods might be useful. Seeing some bad results on KPIs, manager has a possibility to make changes and – after a time – check whether the thing got improved or need different or more radical movements.

Although the management strategies may be similar, the details always differ. That’s why every company, enterprise or corporation has its own Key Performance Indicators that are unique and using them in different firm (or even department) may lead to bad conclusions.

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    • business-stuff profile image

      business-stuff 

      5 years ago from India

      Wow, what a hub, i m glad to learn about cycle time, turnover and percentage of reclamations, need to know more about the key aspects...

      Thanks a lot :)

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