How to design a KPI program that achieves your business goals
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Business journals have devoted a lot of attention to key performance indicators, and “KPI” has become as much of a buzzword as any in discussions of business performance. It is important not to lose sight of the essence of KPIs and what they are.
A KPI is a measure of whether or not the performance goals or agreed outcomes of an employee, team or business unit have been achieved. KPIs are high-level snapshots based on specific predefined metrics. They are clear and quantifiable measures of the critical success factors for an organization. KPIs let organizations know if they are on track and how well they are performing against their strategic targets and goals.
KPIs typically include any combination of reports, spreadsheets, dashboards, and charts that present information critical to an organization’s success. KPIs can include any of the following:
- Global or regional figures and trends over a given period
- Staff statistics and trends
- Real-time logistics, supply management and supply chain insights
- A primary objective selected with KPIs to support and ensure the success of this objective.
Many experts rank only the most important metrics as KPIs and keep the number between three and five that clearly relate to an organization’s business goals.
The goals of a KPI program are learning and empowerment, better decision making, and improved organizational performance. It is not about controlling the staff.
However, many challenges prevent KPI programs from being effective agents of change as intended. They include the need for organizations to spend enough time to identify the most effective metrics, collect accurate information, and report it on a regular and consistent basis. Organizations also need to provide verifiable documentation to support KPIs, cover all important areas of business work, and strike a balance between the amount of information collected and costs.
Developing key performance indicators takes action
Users or developers should carefully define target performance levels as well as how best to represent deviations from that target in the most impactful way. Bar charts, graphs, pie charts, histograms and Pareto charts using colors to show comparisons allow understanding of information at a glance.
Some key performance indicator programs include Intranet portals that provide managers with easy access to critical indicators of organizational performance.
Selecting KPIs is a collaborative effort that includes everyone involved, with a focus on employee learning and growth. Any KPI project is a formal initiative that requires a lot of groundwork. This includes clearly documenting each indicator with the method used to calculate it, the origin of the indicator and the data format used. KPIs are about doing the right things and doing them right.
There are essential guidelines that ensure the success of the KPI program. They start by ensuring that key metrics are aligned with an organization’s strategy and are the most meaningful. A program should also allow actions that can be influenced after considering the impact on the areas of the organization and its staff. The program should share the results and explain what happened and how the changes can be influenced.
KPI programs are intended to improve accountability while being robust to withstand organizational change and individual departures. They are also supposed to be integrated into the organization, easy to understand and cost effective.
KPIs are useful when they can show everyone the path to success and are balanced, which means giving a picture of what the organization does, covering all important areas of work and being meaningful to stakeholders who may need them. use.
The report frame can have different shapes
KPI reporting should take into account the requirements of different organizational levels through a cascading effect, and the frequency of reporting should support timely decision making.
Dashboards are a preferred graphical representation of KPIs and should be one-page views. Dashboards can take different layouts and formats. Other formats are the balanced scorecard, the TQM (total quality management) framework, performance prisms and the scorecard.
Important key performance indicators include:
- Customer satisfaction and dissatisfaction
- Loyalty of the clientele
- Quality of products and services
- Operational efficiency
- Net profit before tax
- Return on capital employed
- Cash flow
- Expenditure as a proportion of income
- Health and security
- Employee satisfaction.
The KPI of customer satisfaction or dissatisfaction should be measured at least every three months using statistical samples and focusing on the top 10-20% of the organization’s customers. Information on the capacity of key machines and plant components should be advanced by at least five to 12 months so that capacity limitations are identified and investment decisions are made proactively. Cash flow charts should go back at least 12 months and project at least six months ahead.
Here are some important questions to ask in the KPI design model:
- What strategic objective does an indicator relate to?
- What is the data collection method?
- What is the source of the data?
- What is the valuation method?
- How often, when and for how long do we collect the data?
- Who collects the data?
- What is the objective or the performance threshold?
- How well does the indicator measure performance?
- What are the costs of data collection?
- What problematic behavior could this indicator trigger?
- Who are the primary and secondary audiences for this indicator?
- How often are reports?
- What is the reporting channel?
- What is the report format?
KPIs measure the right things in the right way. The right method includes timely information to track progress so that it can be used quickly and appropriately. Success of the KPI program includes gathering information that is accurate for intended use, comparable to previous periods or similar programs elsewhere, and verifiable and supported by clear documentation.
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