Key performance indicators (KPIs), or metrics, are used to measure how well the business is doing in different areas. KPIs are used to measure success in high-level areas, such as the business level; mid-level areas, such as business unit, value chain, and business process levels; and low-level areas, such as team and employee level.
The business must ensure that the KPI is relevant to what it is being used for. They should be predictable, so that you can determine if you are deviating from your goal. KPIs should include a description of the statistic, whose performance is related to it, what influences it, and how frequently it should be measured.
The description is a summary of important things about the KPI. It should include what a good value is, how the KPI is measured, why the business is interested in the KPI, and how much of a difference between predicted and actual variables should be reported. The description of the KPI is important because it shows where the value is coming from and why it is important, and alerts the business when something unexpected is happening that could harm or benefit the business.
The KPI should also mention who is related to the KPI. It should mention if and why the person needs to know the KPI, and how or why the KPI influences ratings of their performance. This section is important because it describes how the KPI influences performance within the business, and whose performance is being measured by the KPI.
The business should define what influences the KPI. This section includes what changes the value, how the predicted values are calculated, and when corrective actions should be taken. Influences are important because they show what factors are related to the KPI, and what changes need to be made when the predictive values do not match the actual values.
The KPI should include how often it should be measured. This is based on the cost of measuring the KPI, and the benefit from noticing deviations earlier. The cost should include the cost of gathering the measurement and analyzing the gathered data. Frequency of measuring is important because it lets the business know when the KPI was last measured, and when the next measurement will be completed. It also lets the business know how changeable the KPI is, and thus, how drastic a change in KPI can be expected.
Key performance indicators should be used to keep track of how employees and teams are doing, and how well the business is progressing towards its objectives. However, the KPIs measured must represent or show something, or the business is spending money to collect data that will not be used for anything.