Key Performance Indicators? –
Surely you have heard on many occasions about KPIs, the evolution of KPIs, analyze a KPI, etc. And you may have asked yourself, okay, but what is a KPI? What is it for? What does it contribute to my business? If so, keep reading this article to solve these doubts and comment on essential aspects to get the maximum out of your business indicators.
Table of Contents
What is a KPI?
Key Performance Indicators? –
A KPI (an acronym for Key Performance Indicator), which we could call a performance or performance indicator in Spanish, is a measurable value that informs whether our company effectively achieves its main objectives. Within a company, KPIs can be used in different areas or at various levels to assess whether or not the goals are performed at the general level of the company or in a specific department, product, or process.
In the end, all these KPIs are collected and organized in a scorecard to provide a broad vision of achieving the company’s objectives.
But measuring anything doesn’t make it a KPI. Every company must define its KPIs after having a business plan and quantified and adjusted its business objectives.
What makes a KPI an Effective tool?
We could say that a KPI is valuable if it pushes us to take action and take action. This statement is common to use generic KPIs or copy from others that later do not reflect the company itself and its business, so they are not encouraged to take action. You have to consider the objectives, processes, and evasion of each company before adopting a KPI.
In addition to this, a KPI is a powerful communication weapon and therefore must comply with the same rules as any other communication. The information must be clear, concise, and relevant to be understood and internalized by the entire team.
The formulation of these KPIs has to arise from reflection from the company. What are the objectives of the company? How do I want to achieve them? Who can help achieve them? , etc. And also, the process should involve different levels of the team and be iterative with other people. With this, a series of concepts and ideas will be determined to understand which processes can be measured and who should have that measurement through a KPI.
Think carefully. Does your KPI meet these five requirements?
One method to evaluate a KPI is SMART criteria (specific, measurable, attainable, relevant, time-bound). In other words:
- Is the objective specific?
- Can you measure progress towards the goal?
- Is the goal realistic and achievable?
- Is the objective relevant to the company?
- Can you track the goal in time?
Defining a KPI for my company – Key Performance Indicators?
- Defining a KPI is not easy and can get very complicated. Sometimes KPIs are jumbled with simple measurements of company data, and it is not the same as KPIs need to be defined according to a KEY OBJECTIVE of the company. One aspect to focus on is the letter K for Key related to a specific goal when describing it. Some questions you can ask yourself are:
- What is the desired goal?
- Why is it essential to achieve this goal?
- How is your progress being measured?
- How can you influence the result?
- Who is responsible for procurement?
- How do you know that you have achieved your goal?
• How often should I check the progress?
If the goal of my company were to increase sales compared to the previous year, my KPI would be “sales growth.”
- Increase sales by 20% this year compared to the previous one.
- The achievement of the same will allow us to maintain the investments that we will make this year.
- We will measure it with the sum of the billing in Euros vs. that of the previous year.
- Hiring a new commercial agent could generate recent sales, with customer growth campaigns could increase their sales.
- My sales manager is responsible for achieving the goal.
- I know I have succeeded because the growth is 20% or more.
- The KPI will be revised every month.
Be careful; KPI’s are not set in stone.
Although we follow the SMART criteria to define our KPI’s, their continuous evaluation must always be taken into account.
A change in the company’s direction or an adjustment of the company’s objectives will indeed imply the need to review the KPIs. In this way, we ensure that the KPI remains relevant or if a new higher or lower goal should determine or set another different KPI.
Are KPIs still important to Companies?
It just said that the word KPI could have many connotations, also harmful; some see it as an obsolete concept. In my opinion, this may owe to something pervasive within companies, the lack of communication.
As I said before, a KPI is as important as the actions it pushes to carry out, and achieving KPIs thus requires the entire team’s time, effort, and acceptance to fulfill it. And also, the expectations that it can fulfill must transmit. Not taking this into account means that KPIs lose their potential value and become obsolete.
Examples of common departmental KPIs
Before, I said that copying KPIs is a common mistake. The examples below guide and inspire because you must consider each company’s objectives, processes, and casuistry before adopting a KPI.
- Sales Area: Sales growth, reaching a specific sales figure, increasing the ratio of operations per customer, etc.
- Marketing Area: Measure the effectiveness of advertising campaigns to generate more income, grow web traffic, increase business opportunities, etc.
- Finance Area: Analyze the financial result or liquidity to measure economic health, control the ratio of collections and payments, etc.
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