What is a Key Performance Indicator(KPI)?

Key performance indicators help you manage your business and identify opportunities for improvement. However, it is difficult to choose the right KPIs that you need to measure in order to optimize your business. We have gathered a few useful KPI examples which can help you define your goals.

Nov 20, 2023
What is a Key Performance Indicator(KPI)?
Key performance indicators (KPI) are the metrics that help you manage your business, measure progress, and identify opportunities for improvement. However, it is difficult to choose the right KPIs that you need to measure in order to optimize your business. We have gathered a few useful KPI examples which can help you define your goals and get started with measuring your company’s performance.
Before that,

What is a KPI?

KPI stands for key performance indicator, a measurable metric that indicates the degree of success an organization has in achieving its targeted goals and objectives. KPIs help leaders to evaluate overall business performance and can be used to assist with day-to-day decision making. KPI reports are common among financial, HR and marketing teams as these departments usually have a more strategic influence over how the company performs.

Why use KPIs?

KPIs are designed to help organizations avoid achieving meaningless or unmeasurable business goals. The reason for measuring performance is that different metrics give you the ability to understand what’s working, and why things aren’t going better than expected.
Everyone on the business team can use KPIs to assess how their efforts are performing in relation to their organizational goals and targets.

Types of KPIs

KPI can be broken up into traditional metrics such as revenue, cost and profit by product line or customer segment. These metrics are used to understand how a project is performing in relation to its objectives; this information will help with the decision-making process for prioritizing resources.
Other types of KPIs include: performance indicators, actionable insights and execution drivers (key events).
  • A performance indicator is a statistic that indicates the progress of a project or department that is representative of an overall success ratio.
  • An actionable insight explains how to improve your performance in relation to particular goals and targets. It also provides an indication of why things aren’t going as expected. For example, if you got 10% more revenue than predicted then it might be because you were able to recruit some new customers; where as, if the revenue unexpectedly fell by 20%, it could mean thatyou weren’t reaching enough potential customers through advertising.
  • Key events are insights that come as a result of engineering changes, business decisions or innovations in the market place. They can also be used by your team to provide insight into alternative courses of action and how they would impact your objectives.
You should always consider using both traditional metrics alongside KPIs and considering bringing specialist staff on board to carry out key event monitoring when there isn’t a way for everyone to do this.

KPIs at different business levels

KPIs may be employed at all levels of a company's hierarchy. But it's easy to categorise them into three groups.

Department level KPIs

This type of KPI are used within a specific department. They could include anything from the purchase volume for a given product or service to the number of hours that employees in that role dedicate.
For example, if the QA team is spending 4 hours a day reporting bugs and issues, the velocity and defect detection effectiveness can be considered as a kpi. There are a number of tools to detect these metrics. Disbug, a visual feedback tool is proven to save 2-4 hours per day in the bug reporting process.

Product, project, programme and relationship level KPIs

These types of KPI vary depending on how much influence they can have over an organisation's viability—and this depends wholly on your company strategy. While there isn't one clear method for deciding what these
KPIs should be, it's important that their success is measurable and can influence the direction of your strategy.

Strategic level KPIs

These types of KPI are used at a business-wide level—for example, share growth or shareholder return from a company investment. They're typically not measured in hours worked but rather by performance indicators such as revenue for investments or value added per person year/investment.

How to write and develop KPIs

It's tempting to measure everything—or at least the things that are easy to measure—with so much data. However, make sure you're just tracking the key performance indicators that will help you achieve your business objectives. One of the most significant parts of the KPI definition is the strategic emphasis. Here are some guidelines for creating effective KPIs.

Decide on the type of KPI that you’re going to create

We talked about a range of various KPI kinds in the previous section. Identify the primary goal of your project before deciding on what type of KPI to follow.
This is typically measured by financial indicators such as value added per person or shareholder return that influence a company's strategy over time, or performance indicators like revenue from investments in a specific company initiative or plant opening date indicating how new product launch milestones have been achieved.
If you're aiming to measure a personal- and team-driven KPI, it should be capable of influencing how work or collaboration is prioritized by your whole organisation.

Share your KPI with stakeholders

To gain support for the implementation of the project, it's important to share your KPI and how you're measuring progress with all relevant stakeholders. When creating a KPIs make sure that they are focused on target performance rather than work penalties as this will impact customer satisfaction and sales figures.
Learn more about the latest business KPIs by understanding what each KPI is for, including the different meanings and advantages that can be achieved through it.

Communicate and make people aware of KPIs

If you have not implemented a Team KPI before, its best time to do so is when introducing new strategic initiatives or policy change that requires bold and successful effort from everyone in the organisation! Everyone can see what you're working toward if you communicate your key performance indicators.
KPIs should not just be communicated at the start of a new project or once a year. They must be reminded of the organization's objectives on a regular basis.

Make sure the KPI is actionable

A KPI should be both actionable and measurable in order to achieve the desired performance. Think about what you can do now to begin achieving that result.
Include multiple KPIs when calculating overall company goals/objectives. It is important that a clear, specific goal exists for each business measure included in an organisation's key performance indicators because otherwise it may lead their lack of focus on long-term opportunities.

Avoid creating too many KPIs

A key performance indicator should be a clear way to measure an organisation's success and the potential impact on its business.
A good limitation of KPIs is that they can increase efficiency and productivity when used pre-emptively by increasing transparency into how work gets done - rather than trying to launch too many at once or expecting them to give all necessary answers in one fell swoop.

Update your KPI objectives as needed

A key performance indicator is basically a measure that indicates the level of success an organisation has been meeting against their goals. It should be measurable, reliable and defined with ease and clarity.
Make it a practise to check in on a frequent basis not just to evaluate how you're doing against your KPIs, but also to identify which ones need to be altered or eliminated entirely.

Don’t make these common KPI mistakes

  • Trying to make one KPI represent a metric like sales or employee productivity - there is no way that this can be achieved
  • Failing to keep KPIs manageable, as they're simply impossible to achieve with all the work being done at any given time
  • Expecting every measure and goal included in an organisation's key performance indicators give all possible answers, because this is unachievable.
  • Creating too many KPIs and failing to measure the effectiveness of each one
  • Taking the KPIs too literally - they are merely guidelines, not concrete rules.
  • Focusing on short term goals at the expense of long term ones
  • Failing to account for all the moving parts in an organisation, such as human resources or input into a process.
  • Not measuring effectiveness

Final Verdict

Key Performance Indicators plays a key role in an organisation and is one of the most important things to focus on for improving productivity. KPIs are best used as a guide, rather than complete rules, but don't make these common mistakes when using them at your organisation.