Key Performance Indicators - Overview of KPIs
Introduction:
Introduction:
This article will give an overview of key performance indicators (KPIs) and offer some helpful tips and advice when it comes to defining KPIs.
Overview of Key Performance Indicators:
A performance indicator is a measurement by which some sort of performance is gauged. A key performance indicator is a specific type of performance indicator that has been identified as being critical to the performance of a business, company or organization.
Obviously, the nature of an organization or company will affect the types of key performance indicators examined. Businesses tend to look at issues/events such as:
The amount of income from new and returning customers.
Total sales per month, year, etc.
Sales by department, sales personnel, etc.
The return on investment (ROI) from advertising and marketing campaigns.
Turnover of accounts payable.
Cash flow return on investments.
Processing costs of invoicing.
Amount of bad debt versus revenue.
Return on equity.
Monetary value of overdue invoices.
Defining and monitoring KPIs, as well as taking action based upon KPI results, are critical parts of any professional performance-management process.
Types of KPIs:
Key performance indicators can be differentiated by the nature of their measurements. Some types of KPIs are:
Quantitative indicators, which represent a finite number.
Directional indicators, which represent upwards or downwards trends.
Financial indicators, which represent some sort of finance-specific values (e.g., ROI).
Defining Key Performance Indicators:
It is important to have a few things in place before defining KPIs:
Have a formalized business process. KPIs should allow for some type of action to occur, based on KPI values. Modifying processes can be difficult if those processes are not documented and understood.
Define business goals. Know what it is you want to achieve and then utilize key performance indicators that will help you achieve those goals.
Be able to quantify your business metrics. Most often this is done via customer relationship management (CRM) software, along with a back-end database system. Company data should always be stored in electronic format so it can be easily queried.
The next step is to think about what metrics play an important role in your success - and from that define
key performance indicators that measure those metrics in a way that is "actionable." In other words, a KPI's value should result in some sort of possible action being taken. The exception is a KPI's value that represents either success or failure: in the case of "success" an action may not be required.
Once you have determined what your key indicators are going to be you must then set some sort of numerical targets for them. Numerical targets can be:
An upper or lower limit.
A specific value.
A range of values.
A percentage.
A date (by which time something should be completed).
Your key performance indicators must then be analyzed by users who have the authority to take action or initiate some sort of action based on KPI values.
Note that KPIs are most often included in data visualization software such as performance dashboards.
Conclusion:
This article has just scratched the surface on the importance of key performance indicators. However, it should be apparent that performance management and KPIs can and should play a crucial role when it comes to achieving your defined goals and objectives, whatever they may be!
Key Performance Indicators - Overview of KPIs
By: Steve B
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