Businesses nowadays are very competitive and fast phasing. The drastic changes in business world needs better strategic planning and actions in order to reach its potentials along its organizational goals and ambitions. Every day is an opportunity for every venture to make itself on the top, and this has been part of every business’ aspirations. To attain this, better strategies must be developed. There are planning tools that are always available to help managers and their team create, monitor and assess their goals and the actions taken to achieve it.
Along with other strategic planning that is appropriate for your business, the Key Performance Indicators (KPI) and other business metrics is a big help for any venture to identify, recognize and understand the goals that are striving to reach, and how every actions taken can contribute to its fulfillment. Anyone does not want to become blind and clueless on everything that is happening on their organization, that is why they need to have business measurements specially to aid them in decision-making process.
Generally, metrics are used to measure particular points for a particular period of time, However, KPIs exist to symbolize an organization’s certain objectives, at the same time measure an action or performance against a specific target. Every target has its own definition whether in strategies, planning or budget categories and with it comes its range of performances that needs to be done. These are comprehensive measurements that are used as guidance in any business objectives. Moreover, KPIs can also be used when dealing with people or clients outside the workplace. With this, it can be analyzed that any KPIs are metrics, but not all metrics can be considered as KPIs.
Every KPI stipulates emphasis on improvements in operational and strategic perspectives of the business, essentiality of creating analytical foundations in decision-making, and the need to just focus on every detail that matters most.
Some KPI Categories
As mentioned, there are various metrics that can be used depending on the goal or objective. A business can reach its success when its manager and the organization know how these metrics should be used and how different measuring types can aid in recognizing its performance.
However, for KPIs case, it can be categorized in different types. These are the following:
- Inputs- it determines the amount, type and quality of resources that are consumed output-produced process or activity.
- Process- aside from measuring the controls while doing a process, it also identifies how well quality and consistency a process is in reaching a goal or objective for the organization.
- Output- these are the results of a work that was done and what has been produced.
- Outcome- this pertains to the result or accomplishment from a process. It can be classified as:
– Intermediate outcome- the kind of outcome that is a direct result from a certain activity
– End outcome- the kind of outcome that came from informing or bringing awareness about the existence of a particular thing, product or service.
- Project- it measures the milestones that are already delivered or achieved that is related to a specific project or initiative.
Different Types of KPIs
Despite of the general idea that every KPI is based from the organization’s objectives and goals that want to attain, it is important to identify a particular KPI tool that will work for its every aspiration. Moreover, every department has different needs and targets, which means that it will also need different KPIs as well.
Here are some types of KPIs that you can consider for your venture:
- Quantitative indicators- those that represented in numbers and figures
- Qualitative indicators- those that pertain to any subjective aspects
- Leading indicators- these predicts the results of a process underwent in the organization
- Lagging indicators- help identify the success or failure possibilities
- Input indicators- measure the resources generated while attaining a certain outcome
- Process indicators- determine the efficacy of a particular process
- Output indicators- help to reflect a result of the processed actions
- Practical indicators- these indicators are in line on the company’s process
- Directional indicator- determine if the organization is getting better or not
- Actionable indicators- these describes the company’s control to effect change
- Financial indicators- these are essential in measuring performances and in monitoring the operational index.
Examples of KPI
Different KPIs work in different aspects of a business or organization. Regardless, KPIs are grouped into four essential aspects: customer relations, finance, employee or manpower and the internal processes.
Here are some examples of KPIs that you can explore if it can work on your organization:
- Customer retention rate
- Customer profitability score
- Net promoter score
- Relative market share
- Conversion rate
- Return on investment (ROI)
- Return on Assets
- Operating Margin
- Cash conversion cycle (CCC)
- Net profit
- Employee management level
- Employee satisfaction index
- Staff advocacy score
- Human capital ROI
- Revenue per employee
- Quality index
- Capacity utilization rate (CUR)
- Project schedule variance (PSV)
- Earned value metric
- Process downtime level
Tips to Use KPI for your Business’ Success
With lots of KPIs to choose from, it is important to know what are your organization’s goals that needs to be achieved and what KPI metric is suitable for this. In addition, you also have to know how to monitor your KPI.
In order to make the use of your KPIs, here are some of the things that you should do:
- Focus on the identified KPI that you think would aid your business to reach its desired results.
- Learn and understand the required metrics to maximize its potential for your business.
- KPIs do not have to be that complicated. All it takes is simplicity yet it should always provide regular and timely information for your organization.
- Regardless of what KPI you will use, remember that it should always be aligned to the goals and objectives of the company or the organization.
Importance of Identifying and Choosing the Suitable KPI
Here are some of the reasons why every company needs to have their KPIs:
- It helps the management and the company as a whole to respond events that might bring huge impact to the business as soon as possible.
- KPIs can be used to reach specific targets in the business for it to bring out its strategic goals.
- It helps businesses to be always focused on a common objective or goal and ensures that its functions can affect this certain target.
What is a Good KPI?
A good KPI
- Gives factual indications of progress in achieving a desired result.
- Can measure what needs to be measured to aid in better decision-making process
- Has a comparison that can indicate the status of the performance on a certain period of time
- Aids in tracking the various aspects of the organization like the efficiency, effectiveness, quality of the accomplished tasks, project and personal performance and utilized resources
- Is a balance between lagging and leading indicators
KPIs do not just work for the managers only. It can be applied to almost every part of any company.