For growing and competitive businesses, it is wise to continually check up on long and short term objectives. To enable this process, business can use Key Performance Indicators (KPIs) to track the progress of established goals across organizations as well as individuals. To optimize the use of KPIs, it is imperative that they have each of these seven essential characteristics:
For a KPI to be truly helpful it needs to be simple in two ways. It needs to be both easily comprehended and measured. For example, a KPI such as “how many clients did we add this month” is simple in both ways. Business analytics expert Jay Liebowitz says that an effective KPI is one that “prompts decisions, not additional questions.” Each staff member involved in a goal should know exactly how to effect a KPI. If the goal is clear, such as “add more clients,” staff can make proactive decisions to influence the outcome. Additionally, a simple question like client acquisition is simple to gather. You want a KPI that will raise the overall visibility of the campaign without disrupting daily operations.
According to a Data Warehousing Institute metrics report, effective KPIs “cascade from…strategic dashboards to tactical and operational dashboards.” This simply means that KPIs should trickle down from the overall strategic goals of an organization to the daily operations of the staff that are effecting them. While some organizations focus on gaining an ever-growing amount of clients, for other other businesses, this may not align with the overall vision. For example, a business that centers on customer service would have a more central focus on customer retention than acquisition. Make sure that KPIs are always aiding the umbrella goals of the organization.
Another one of the characteristics of an effective KPI is relevance, meaning that the appropriate decision makers are in control of effecting specific KPIs. For example, a KPI that asks “how many products did we sell during our sampling event” should be the responsibility of the marketing manager. By assigning the responsibility of the KPI to the relevant manager, the measurement will be more educated and the results will be more successful.
To analyze positive and negative variations from a goal, a KPI must be measurable. This does not always need to be qualitative measurement such as “how many products did we sell last month,” but can also be qualitative such as “how engaged are employees with their work.” The latter can be determined with standardized surveys, even though its subjective nature isn’t numerical. Always ensure that your KPI is based on a solid, focused goal such as sales, marketing, or customer satisfaction. An effective KPI avoids generalized questions like “Improvement in field operations.”
The National Federation of Independent Business (NFIB) ranks setting “unachievable goals” as one of the biggest employee de-motivators. KPIs must be set with goals that employees feel they can reach. The more realistic the goal of a KPI is, the more likely employees are to reach it. Instead of setting large, seemingly unattainable goals, start small. For example, set monthly goals that employees will be challenged, but not overwhelmed by. By having closer deadlines and smaller goals, the organization can attain the overall growth it aspires to.
Effective KPIs are timely in two ways: Their results are reported on an appropriate timeline, and are analyzed in a relevant time period. Businesses must find a happy medium with reporting on KPI results. Infrequent reports will create difficulty in accurately identifying trends, while reporting too frequently can diminish the value of the collected data. To determine the appropriate frequency of your reports, consider the sensitivity, urgency, cost, and accuracy of the proposed timeline. Additionally, ensure that the results of the report are being acted on in a timely manner. For example, analyzing data from an isolated month in the previous year would not be a good benchmark for your next month in the current year.
Another of the essential characteristics of an effective KPI is its visibility across the entire organization. Growth is achieved more easily when all employees are engaged and aware of the organization’s goals. While there may be parts of the organization that will not actively participate in effecting a particular KPI, making the goal visible will increase employee engagement and set a standard for accountability on future projects. Key Performance Indicators are an excellent way to measure the success of organizational and individual goals and these seven characteristics will encourage their success and longevity in any organization.