KPI stands for Key Performance Indicator. It’s simply a measurement you take and track over time to evaluate performance of something.
KPIs are commonly used by businesses to measure how they are performing in various areas, but there’s nothing to stop you applying KPIs to anything you want to track the performance of.
If you’re still confused about what KPI means, let’s look at an example. How’s your health?
I’d say that weight is a key measurement to track if you want to monitor your health. If you’re really serious about it you might take a measurement every week to check your performance.
However, numbers on a page aren’t that easy to find meaning in, especially if there’s a lot of them. So when working with KPIs we would typically plot the data on a graph, or create some kind of visual indicator, which helps make any increases or decreases obvious.
If you were to see the line of our graph going up, it would not only be obvious that you’re gaining weight, but you could also take action quickly before things get out of control.
Weight isn’t the only thing you might use to track your fitness. Other things I can think of might include blood pressure and waist size. These could also be put on a graph and now we’re starting to create a dashboard. This provides a great insight into your fitness so you can make informed decisions about what you need to improve.
KPIs are used exactly the same in businesses, to track the things that matter and make better business decisions.
Types of KPIs
There are many types of KPIs, but they generally fall into four categories:
Financial KPIs: These help you track your financial health. Examples include revenue, profit margins, and return on investment (ROI).
Customer KPIs: These measure customer satisfaction and loyalty. Net Promoter Score (NPS) and customer retention rate are common examples.
Operational KPIs: These focus on your day-to-day processes and efficiency. Examples include production output, employee productivity, and error rates.
Strategic KPIs: These align with your long-term goals. Market share, brand recognition, and new product launches are examples.
Using KPIs for Productivity
Now, you might be wondering, “How can KPIs make my business or organisation more productive?” Well, KPIs act as a roadmap, guiding you towards success by:
Setting Clear Goals: KPIs help you define clear, specific, and measurable objectives, which keeps everyone on the same page.
Monitoring Progress: By regularly tracking KPIs, you can spot problems early and take corrective action before they become major issues.
Making Informed Decisions: KPIs provide data-driven insights, enabling you to make informed decisions based on real performance metrics.
Fostering Accountability: When employees have clear KPIs, they know what’s expected of them, which boosts accountability and motivation.
Continuous Improvement: Following Deming’s philosophy, KPIs facilitate a culture of continuous improvement, leading to higher efficiency and better results.
A Little Bit of History
If you want to know who came up with the concept of KPIs you’re going be disappointed. Although some credit this to Management Consultant Peter Drucker, it’s not true. The idea of performance based measurements has been around a lot longer. Even the Babylonian civilisation which existed around 4000 years ago used various measurement and recording systems for tracking agricultural production, trade and tax collection.
In conclusion, KPIs are like the captain’s instruments on a ship, helping you steer your business or organisation in the right direction. Understanding what KPI means is the first step towards unlocking their potential for boosting productivity.
Start by identifying the right KPIs for your goals, monitor them consistently, and use the insights gained to make informed decisions. With KPIs as your guiding light, you’ll not only navigate through challenges but also sail towards greater success.
Remember, it’s not just about knowing what KPI means; it’s about using them wisely to improve performance over time.