Every now and then I will be writing about metrics or key performance indicators (KPIs) as they are a very important part of business intelligence; furthermore, nowadays in a well-structured company data gets fed directly to generate the KPIs for the wanted period of time.
If corporate strategy were to be illustrated as a pyramid with the most subjective concepts at the top and the tangible at the bottom it would look something like this:
This is just one example, but in general not only is the specific and concrete at the bottom and the aspirational objectives at the top but that order determines the relationship between each one. The top value serves as a guide for the next concept below; for example, once the company defines its values it will use them as the base to define its vision and once they have defined what they aspire to achieve with their values they can proceed to define their mission and so on. The concepts below support those directly above them. Plans and goals (strategic objectives) are sustained through KPIs, they illustrate how well the plans are going and how possible the goals look at a certain point in time so the company isn’t operating in ignorance. The objectives in turn are made to realize the company’s mission. Businesses should start with the top concepts and work their way down in order.
Key Performance Indicators (KPIs)
They serve to know the state of an activity, so it can be measured and quantified to have an unbiased way to value the use of resources, systems, and activities. To come up with a KPI it’s important to know the following:
What are you trying to measure? Based both on the business background (ex. Finance and Marketing may have a different angle when measuring the success of the same campaign) and the concept to be measured.
What’s the goal? Defining the audience that will review the KPI, the business process that it will fall under, the reason why it’s being measured, the reliability, and the person responsible of calculating it.
How are you calculating the indicator? Depending on the complexity when coming up with a new KPI you need to think of the variables, formulas, and maybe even algorithms needed. Other important factors to take into account are the periodicity (how often will it be calculated and how often will it be published).
The output should be measurable over various periods of time. They should be quantifiable, not change depending on who calculates it, precise, unique, clear, and consistent. As mentioned earlier with the pyramid, the goals should serve as the guide for the KPIs. One way of remembering the criteria and assuring you have the right objectives behind your indicators is through the word SMART:
Specific – they should be clear and concise so that they drive the team to action.
Measurable – they should be calculable and comparable over the different periods of time.
Achievable – they should be attainable by the team for the designated time frame (asking for the impossible will only kill morale when the team first sees the objective and then again when they’re not able to accomplish it).
Relevant – if the performance indicator was created with a strategic objective as a guide then this one is an easy check mark.
Timely- it should provide a sense of urgency if needed but also go hand-in-hand with being “Achievable”.