Key Performance Indicators in a Nutshell


KPI Definition
Key Performance Indicators (KPI's) are measured evidence that desired business results are being achieved. KPI's are feedback about how the business is performing.

  • KPI's are essentially metrics linked in a meaningful way to an important business objective. These are the "critical few" measures that you need to know to get the job done.
  • Goals define the end results we hope to achieve, and KPI's define the measurements used to monitor progress toward goal attainment.
  • As a general rule, if you will not make business decisions based on a measure, then that measure is not a KPI.

Purpose of KPI's

When structured to reflect business strategy, KPI's provide business owners with answers to important business questions, help managers understand how their organizations are performing in relation to their strategic goals, and provide an indicator to determine whether performance is on track.
The term KPI tends to be misunderstood and overused as a buzzword. The KPI bottom line is that good measurement provides timely feedback to make quality decisions at the right time.
Getting Started with KPI's

  • First, You Have to Understand Your Business and Business Goals. What are your real business objectives and what does success look like for your company? What is its vision and current mission?
  • Second, You Have to Select a Specific Goal That is Important to Achieve. People do not care about measures - they care about problems (i.e., fixing them). To understand your business objectives, it is important to drill down into specific aspects of why your company exists and what is it trying to achieve.
  • Third, You Have to Set Relevant KPI Metrics for A Specific Goal. KPIs are concrete measurements that provide empirical data about your businesses progress. For any active goal, a gap exists between current reality and the desired end state. A KPI measures the size of that current-vs.-desired gap.
  • Fourth, You Have to Define a Specific Data Source and Method for Determining the Value of the KPI. If a KPI is going to be of any value, there must be a way to accurately define and measure it. Data quality matters, but beginning with imperfect data is vastly superior to waiting until perfect data is available.
  • Fifth, You Have to Take Action. Interpret what your KPI is saying, and why. Context is often important, so you may need to view the KPI along with other relevant measures. Most important, make a decision and take action to move closer to your goal.

Two Examples

  • Objective: lose 20 pounds. To achieve this, you set a KPI to illustrate your progress toward your goal. How many pounds do you want to lose each week?
  • Objective: build your cash reserve to $100,000. Your KPI to reach that goal would be to add $10,000 per month to cash reserves. The metric would be how much cash you actually contribute toward the total goal.

Comments

Post a Comment

Popular posts from this blog

Society of Professional Hispanic Engineers Lean Six Sigma Workshop

Image
We took a different approach to Lean Six Sigma training for the Society of Hispanic Engineers Eastern Leadership Technical Conference in San Juan, Puerto Rico on February 24, 2012. We did three things that were just a little bit different from our normal approach: 1. We adapted the Navy's Lean Six Sigma curriculum to offer it in a workshop format. The hands-on nature of the workshop format aligned well with the typical curriculum already, but we had to make some adjustments for the space and time constraints of a conference workshop. 2. We simplified the process simulation just a little bit to minimize the materials requirements. We put together a meaningful simulation experience using only a single piece of paper. It made it a lot easier to travel with the materials. 3. We increased the enrollment cap from 20 seats to 60. The 20 seat limit was originally set to make the instruction highly interactive. To maintain the interactivity, we incorporated more co-facilitators for th
Read more

Priming the Project Pump: Lean Six Sigma on a Shoestring

When I teach lean six sigma tools and techniques, I always emphasize the importance of application. Withouth projects that produce results, lean six sigma is only another empty training program about solving problems. Regardless of what I say or do during training, the transition from student to practitioner is sometimes slow. The slowness of the student-to-pracitioner transition is partly due to my unique organizational circumstances. I am building on the ruins of a previous lean six sigma deployment. The earlier deployment team had built infrastructure to the point of critical mass; the project pipeline was flowing and beginning to produce real operational results. Then leadership changed and the effort was abruptly cancelled -- existing project teams were disbanded. The re-deployment investment for the current effort consists of one half-time black belt (me) and a small office supply budget. With those resources, I am deploying lean six sigma to a nation-wide enterprise of a few tho
Read more