Defining Success: Key Performance Indicators
I was inspired to elaborate on the discussion of goal-setting from my last article with additional insights/tips related to measuring performance. It is always helpful to have a good data-based snapshot of you and/or your team’s contributions. This can be even more important during a time of tighter budgets and reduced spending like many of us are currently experiencing. Often organized in a report dashboard or scorecard, key performance indicators (KPI) are a great way to summarize performance/effectiveness. They help tell your story about progress and identify opportunities for improvement. KPI can be developed for teams, organizations, projects, etc. Similar to individual goals, project or team level KPI should align with higher order objectives such as at the department or organization levels.
The gauges on a vehicle dashboard are a great example of KPI. They provide a quick meaningful summary of important functions in the vehicle (e.g., speed, fuel, temperature, etc.) and make it easy to identify problems (e.g., running low on fuel). KPI for individuals and organizations are not always that easy to identify or develop, but they should generally be that easy to understand and provide a similar level of meaning.
Important Points Regarding KPI
Identify two to three; avoid the temptation to measure/track everything that can be measured.
Select the most relevant/important indicators of success.
KPIs should be as simple as possible and still be meaningful.
Goals for improving a KPI should be challenging, but achievable.
KPI may not be based on information you already track. Begin with an exploratory mindset.
Business needs may dictate a change in KPIs over time, therefore, it is a good idea to re-visit them periodically to ensure alignment with business needs/objectives.
How KPI and SMART Goals Sync
I find it helpful to consider KPI within the SMART goals framework since they are a reflection of progress on the goal.
Specific: The KPI represents the most appropriate level of quantifiable information that directly relates to the outcome you are attempting measure. For example, the most appropriate level KPI could be a composite of multiple data/information points. Growth rate KPIs are a common measure that includes multiple levels. You have the raw numbers across a period of time, the amount of change between time 1 and time 2, and the percentage calculation. The percentage calculation is the KPI representing growth rate on a scorecard or dashboard.
Measurable: Quantitative KPIs can be the most useful for developing a quick dashboard view of goal progress or improvement. The dashboard view has the benefit of summarizing progress and would enable comparisons to past results and provide a frame of reference for developing new goals. For example, it can be helpful to see how many widgets were sold in the past and percent change as you set new targets. My recommendation is to always quantify your KPI. For example, customer comments can be categorized into themes where your goal might be to increase or decrease the number of comments referring to the theme. Also, comments analysis tools evaluate the emotional sentiment communicated in customer comments, thus enabling you to measure the extent that comments are positive or negative.
Actionable: You are able to take action on or effect aspects of this measure. This can be tricky to determine when executing on the KPI involves effort from external stakeholders (e.g., other parties must complete paperwork for you to proceed). In these cases, consider how you might influence the process overall. For example, what outcomes are you responsible for and how can you influence them?
Relevant: This goes back to how performance on the objective relates to overall success. Priority should be given to the two or three KPI’s with the most impact on your success.
Time-bound: This can mean two things relative to KPI. First, the length of time to accomplish a task (e.g., production goals, project timelines) may be an important aspect of the KPI. Second, it is also important to consider how often the KPI information will be reviewed to track progress (e.g., quarterly, annually).
The following list includes KPI that are relatively common to clients with whom I have worked. I did not include the basic metrics you might find in a balance sheet, although they are certainly important performance indicators (e.g., revenue, profit, etc.).
Net Promoter Score (NPS): The NPS is an index ranging from -100 to 100 that measures the willingness of customers to recommend a company’s products or services to others. It is used as a proxy for gauging the customer’s overall satisfaction with a company’s product or service and the customer’s loyalty to the brand. Other measures may be relevant as well.