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Lesson 9 Kpi

KPIs are quantifiable measures that help organizations track progress towards objectives. They provide targets, allow teams to gauge progress, and help decision makers across departments. Some key advantages of KPIs include keeping teams aligned, providing a health check for the organization, enabling adjustments, and holding teams accountable. There are different types of KPIs including strategic, operational, functional unit, and leading vs lagging indicators. While KPIs are useful, they also require ongoing data collection and monitoring to ensure accuracy.

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60 views

Lesson 9 Kpi

KPIs are quantifiable measures that help organizations track progress towards objectives. They provide targets, allow teams to gauge progress, and help decision makers across departments. Some key advantages of KPIs include keeping teams aligned, providing a health check for the organization, enabling adjustments, and holding teams accountable. There are different types of KPIs including strategic, operational, functional unit, and leading vs lagging indicators. While KPIs are useful, they also require ongoing data collection and monitoring to ensure accuracy.

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rachelmaeblc
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© © All Rights Reserved
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Download as DOCX, PDF, TXT or read online on Scribd
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Lesson 8 – Key Performance Indicators

KPI stands for key performance indicator, a quantifiable measure of


performance over time for a specific objective. KPIs provide targets for teams
to shoot for, milestones to gauge progress, and insights that help people across
the organization make better decisions. From finance and HR to marketing and
sales, key performance indicators help every area of the business move
forward at the strategic level.

The importance of such performance indicators is evident in the typical


decision-making process (e.g. in management of organisations). When a
decision-maker considers several options, they must be equipped to properly
analyse the status quo to predict the consequences of future actions. Should
they make their analysis on the basis of faulty or incomplete information, the
predictions will not be reliable and consequently the decision made might
yield an unexpected result. Therefore, the proper usage of performance
indicators is vital to avoid such mistakes and minimise the risk.

KPI Meaning vs Metrics Meaning

While key performance indicators and metrics are related, they’re not the same.
Here’s a quick explanation:

 KPIs are the key targets you should track to make the most impact on your
strategic business outcomes. KPIs support your strategy and help your teams
focus on what’s important. An example of a key performance indicator is,
“targeted new customers per month”.
 Metrics measure the success of everyday business activities that support your
KPIs. While they impact your outcomes, they’re not the most critical
measures. Some examples include “monthly store visits” or “white paper
downloads”.

Categorization of indicators
Key performance indicators define a set of values against to which measure.
These raw sets of values, which can be fed to systems that aggregate the data, are
called indicators. There are two categories of measurements for KPIs.
• Quantitative facts presented with a specific objective numeric value
measured against a standard. Usually they are not subject to distortion, personal
feelings, prejudices, or interpretations.
• Qualitative represents non-numeric conformance to a standard, or
interpretation of personal feelings, tastes, opinions or experiences.
An 'indicator' can only measure what 'has' happened, in the past tense, so the
only type of measurement is descriptive or lagging. Any KPI that attempts to
measure something in a future state as predictive, diagnostic or prescriptive is
no longer an 'indicator', it is a 'prognosticator' – at this point, it is analytics
(possibly based on a KPI) but leading KPIs are also used to indicate the amount
of front end loading activities.

Why Are KPIs Important?

KPIs are an important way to ensure your teams are supporting the overall goals
of the organization. Here are some of the biggest reasons why you need key
performance indicators.

 Keep your teams aligned: Whether measuring project success or employee


performance, KPIs keep teams moving in the same direction.
 Provide a health check: Key performance indicators give you a realistic look
at the health of your organization, from risk factors to financial indicators.
 Make adjustments: KPIs help you clearly see your successes and failures so
you can do more of what’s working, and less of what’s not.
 Hold your teams accountable: Make sure everyone provides value with key
performance indicators that help employees track their progress and help
managers move things along.

Types of KPIs

Key performance indicators come in many flavors. While some are used to
measure monthly progress against a goal, others have a longer-term focus. The
one thing all KPIs have in common is that they’re tied to strategic goals. Here’s an
overview of some of the most common types of KPIs.

 Strategic: These big-picture key performance indicators monitor


organizational goals. Executives typically look to one or two strategic KPIs to
find out how the organization is doing at any given time. Examples include
return on investment, revenue and market share.
 Operational: These KPIs typically measure performance in a shorter time
frame, and are focused on organizational processes and efficiencies. Some
examples include sales by region, average monthly transportation costs and
cost per acquisition (CPA).
 Functional Unit: Many key performance indicators are tied to specific
functions, such finance or IT. While IT might track time to resolution or
average uptime, finance KPIs track gross profit margin or return on assets.
These functional KPIs can also be classified as strategic or operational.
 Leading vs Lagging: Regardless of the type of key performance indicator you
define, you should know the difference between leading indicators and
lagging indicators. While leading KPIs can help predict outcomes, lagging KPIs
track what has already happened. Organizations use a mix of both to ensure
they’re tracking what’s most important.
Advantages and Disadvantages of KPI

Advantages
 Informs management of how a company is performing in countless ways
 Helps hold employees accountable for their actions (or lack of)
 Can motivate employees who feel positively challenged to meet targets
 Allows a company to set goals and measure progress toward those
objectives

Disadvantages
 Results in potential time commitment to consistently gather data over
long periods of time
 Requires ongoing monitoring for accuracy and reasonableness in data
 May encourage managers to focus on KPIs instead of broader strategies
 May discourage employees if KPI targets are unreasonable

Financial Metrics and KPIs


Key performance indicators tied to the financials typically focus on revenue and
profit margins. Net profit, the most tried and true of profit-based measurements,
represents the amount of revenue that remains, as profit for a given period, after
accounting for all of the company’s expenses, taxes, and interest payments for
the same period.
Financial metrics may be drawn from a company’s financial statements.
However, internal management may find it more useful to analyze different
numbers that are more specific to analyzing the problems or aspects of the
company that management wants to analyze. For example, a company may
leverage variable costing to recalculate certain account balances for internal
analysis only.

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