What is the architecture for successful Key Performance Indicators (KPI) and what exactly is a KPI?

Put simply, a KPI is a type of performance measurement that helps you understand how your organisation or department is performing.  Having meaningful KPI allows you to adjust your plan or mission to achieve set goals and targets.

In a previous article, we looked at the Success Formula wherein one of the key parameters was “Analyse”. In this context, KPI plays a critical role towards success in achieving your or your organisation’s aspirations. Hence, it’s important that we get the architecture for successful key performance indicators (KPI) correct.

The architecture for successful Key Performance Indicators (KPI) have to be SMART in that they should be:

  • Specific – it should be clear what is being measured
  • Measurable – it should be measurable against set standards
  • Achievable – target a realistic/achievable goal
  • Relevant – it should offer insight into overall safety performance
  • Timely – KPI’s should follow a set time-frame

Key factors to consider when developing KPI includes:

  • They should be understandable.
  • Meaningful in that they are not just qualitative, but quantitative.
  • Easy to communicate and explain within your organisation.
  • Easy to monitor and maintain.
  • Frequency-based (i.e.,  hourly, daily, weekly, monthly etc).
  • Is relevant and fit for purpose i.e., provides a sense check relative to what you are trying to achieve regarding set objectives and targets.

How do I select appropriate KPI for my vision and mission?

Unfortunately, there isn’t a quick answer to this question.

To a large extent, chances are that someone or somebody has already done the hard work for you with regard to defining specific parameters. Typically, these quantitative measures are presented as statistics relative to an industry, country, demographics etc.

Research is the initial effort required when you are trying to establish KPI.

Research and “benchmarking” against others who are on a similar journey will allow you the opportunity to leverage on lessons learnt and share best practices.

Isolated KPI (i.e., ones that you have developed just for your organisation) can and do help, however, comparison with others and their performance will add greater value and motivation. After all, why reinvent the wheel?

Good research will not also reveal what to measure but also how often. You can additionally leverage on reporting format others have used and customise to fit your requirements (i.e., make it understandable).

Should I have Leading or Lagging KPI?

It’s a good idea to have KPI that are “2-faced” in that they should be both leading and lagging indicators.

 

Lagging indicators look back at historical performance and are therefore focused on outcomes.

 

Lagging indicators are easy to measure.

Leading indicators are forward-looking and offer a glimpse into future performance.

 

Leading indicators are more difficult, prone to subjectivity and error due to the quality of data.

More importantly, both Leading and lagging indicators work in harmony towards achieving goals and objectives.

Some examples of KPI includes:

Health, Safety and Environment (HSE) Metrics

  • Reported Accidents/Incidents
  • Reporting Near Misses
  • Safety Audits and Inspections
  • Corrective Actions
  • Employee Training
  • Spend

 

Customer Metrics

  • Customer Lifetime Value (CLV)
  • Customer Acquisition Cost (CAC)
  • Customer Satisfaction & Retention
  • Number Of Customers

 

Financial Metrics

  • Profit
  • Production Costs.
  • Selling Cost
  • Sales
  • EBITDA (Earnings Before Interest, Taxes, Depreciation, & Amortization)

 

HR (People) Metrics

  • Employee Turnover Rate (ETR)
  • Percentage Of Response To Open Positions
  • Employee Satisfaction

 

On a final note, KPI is not just restricted to organisational or strategic objectives and targets. KPI can and do play a pivotal role in personal development (e.g., fitness, weight loss etc).

 

What is your organisation’s KPI?

Do you have any personal KPI?