Using KPIs to enhance your organization's business value

What is a KPI ?

A performance measure or metric that specifies an emphasis intended to produce a desired result is called a Key Performance Indicator or KPI . KPIs are quantifiable measurements that gauge success of a process or project or a business as a whole. KPIs typically represent values, statuses, trends, or goals even though they can be diverse in nature, KPIs often combine two or more of these into a single indicator. The purpose of a KPI is to present high level and summary information to top level executives (CXOs) or other managers of the company. They use the information to steer an integrated organization. Typically we limit the number of these vital measures to only a few so that the management can get an idea of the whole picture by simply glancing at the important KPIs.

KPIs are typically graphical in nature, and are collected/displayed into a dashboard, scorecard, where they can be easily accessed by the management team. One can obtain a quick and accurate summary of business success or progress toward success by looking at these KPI dashboards. KPIs make it easy for management to understand, make decisions and take action. Based upon the information provided by the indicators, managers can pull the processes and activities that the KPIs represent into alignment with the companies strategic goals and objectives.

KPIs can range from simple to complex. KPIs are often evaluated over time. A simple KPI (represented, say, by a thumbs up or thumbs down image) can indicate a status of monthly profits or expenses, either of which might represent a single, but important, key measure.

A more complex KPI might combine multiple metrics into a single graph. KPIs can be used alone or in combination to help quick decisions and actions by the management, and to provide an indication of progress toward the accomplishment of intended goals.

Key performance indicators (KPIs) are financial metrics and non-financial metrics that are used to define and measure the progress of a company toward its strategic goals. A good business is able to identify, define, follow and take action of their KPIs.

KPIs differ from business to business. The KPIs one selects must reflect the goals of the Six Sigma process one has established. Many companies believe in following acronym "SMART" when they are identifying and applying KPIs.

SMART stands for:

• Specific   
• Measurable
• Achievable
• Result-oriented or Relevant
• Time based

Customer related numbers such as new customers, satisfied customers or customer turnover can be included to make a good KPI. Another example of a good KPI is Bad debts Metric which can track where the company is losing money. The speed of data from KPIs are extremely important. The quicker the management have results, the sooner they can make a decision. Large delays in data can slow down your business process. The KPIs you identify should yield a daily or weekly availability to your data.

KPIs can be summarized into several sub-categories :

• Actionable indicators - These are good for helping a company control the effect of change.
• Directional indicators - These specific if your business is growing or shrinking.
• Practical indicators -   What is interfering with your existing companies process?
• Quantitative indicators - These indicators can be presented as a number.

What is of value to your company should be represented by KPIs. What does your business value the most and need the most is your KPI. Strategy maps are a common tool used to measure KPIs. These strategy maps help you understand the KPI process and the management procedures that need to be used. Most KPIs are long-term in nature and they do not change often. It is important to define the KPIs consistency from project to project. KPIs should be dependable, observable, measurable, reliable and specific.