A Key Performance Indicator (KPI) embodies a strategic objective and measures performance against a goal.
KPIs are applied to Business Intelligence (BI) to gauge trends and assess tactical courses of action.
It is common to divide KPIs into two categories: outcomes and drivers. Outcome KPIs measure the output of past activity and driver KPIs measure activity in its current and future state.
Remember not all metrics are KPIs, so it’s important to think clearly about what metrics really drive your business.
It can be difficult to distinguish outcomes from drivers.
As Neal Williams, founder of Corda and currently head of its professional services, says, “One man’s measure is another man’s value driver. An outcome KPI in one dashboard could be a driver KPI in another”.
Don’t get too hung up on KPI classification, but certainly keep the conceptual differences in mind when possible.
Characteristics of effective KPIs
Delivering high-impact KPIs is crucial to an organization’s performance and growth. Here are six characteristics of successful KPIs:
KPIs should be both simple to understand and to measure. Employees must able to know what the KPI is measuring and how it is being calculated. KPIs are also made simple when they are sparse. Focusing on a small number of KPIs enables employees to understand at a deep level what behaviors the KPI is driving and modify the KPI to deliver better results.
Effective KPIs cascade from strategic dashboards to tactical and operational dashboards. This means that KPIs should trickle down from the overall strategic goals of the organization to the daily operations of the employees that are affecting the KPIs. When KPIs share a link from the C-level to the entry level, they support unified goals and actions.
KPIs must be measurable for employees to analyze their performance. A KPI doesn’t have to be quantitative to be measurable. For example a qualitative KPI such as “how satisfied are our customers with this product” can be measured through customer feedback surveys.
Business analytics expert Jay Liebowitz says that an effective KPI is one that “prompts decisions, not additional questions”. When employees clearly understand what they need to do to influence a KPI, they can manage to do it.
The results of KPIs should be reported frequently enough so that employees can make timely decisions but not too frequently so that they are overwhelmed with data. Organizations should consider how urgent, sensitive, accurate, and costly measuring the KPI is before deciding how often to report on it. Additionally they should ensure that the results of a report are being acted on in a timely fashion.
Making KPIs visible across an organization communicates to employees how their work is affecting the organization’s overall goals. It will incentivize them to work harder and be more productive.
A powerful KPI is meaningless unless its objective, status, and outcome are reported on. At Beekeeper Data, we’re building a suite of best-in-class reporting tools that allow organizations to communicate KPIs through dashboard and email reports.