Key Performance Indicator (KPI)

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A Key Performance Indicator (KPI) is a measurable value that shows how well an organization achieves its key business goals.1

Organizations use KPIs at different levels to see how successfully they meet their targets.

High-level KPIs may focus on the business’s overall performance, while low-level KPIs may focus on processes in departments such as sales, marketing, HR, or support.2

Visual Representation

KPI Key Performance Indicator Visual Representation

Purpose

The primary purpose of a KPI is to give organizations precise measurements that show how well their activities are reaching strategic goals.

By monitoring and analyzing KPIs, businesses can make more intelligent choices, use resources better, and spot areas that need work.3

Characteristics of KPIs

  • Specific: KPIs should be clear and focused on one specific area.
  • Measurable: KPIs must be quantifiable so you can track and assess them accurately.
  • Achievable: KPIs should be realistic and possible with available resources.
  • Relevant: KPIs need to align with the business’s objectives and goals.
  • Time-Bound: KPIs should have a set time frame to ensure progress and accountability.

How KPI Works

KPI offers a collection of measurable values that a company or organization uses to assess its performance in achieving strategic and operational objectives.4

Here’s how the process typically works:

  1. Setting Goals: The first step involves defining clear, achievable goals that align with the organization’s strategic objectives.
  2. Identifying Key Indicators: Based on these goals, the organization identifies specific, relevant KPIs that will indicate progress or success. These indicators are chosen for their ability to provide actionable insights.
  3. Data Collection: The organization then collects data related to these KPIs. Depending on the KPI, this data can come from various sources, such as financial reports, customer feedback, or operational data.
  4. Analysis: The collected data is analyzed to calculate the current value of each KPI. This analysis can reveal trends, patterns, or insights that inform decision-making.
  5. Benchmarking: The KPI values are often compared against pre-defined targets, historical performance, or industry benchmarks to assess the organization’s performance.
  6. Reporting: KPIs are regularly reported to stakeholders through dashboards, reports, or meetings. This ensures that relevant parties are informed about the organization’s performance and can take action if necessary.
  7. Taking Action: Based on KPI performance, organizations may take corrective actions to improve areas where goals are unmet. Similarly, areas of success can be analyzed to replicate effective strategies.
  8. Review and Adjust: KPIs are periodically reviewed and adjusted if necessary to ensure they remain aligned with the organization’s goals and continue to provide relevant insights.5

Usage

KPIs are used in every industry and organization to measure performance and success. 6

Here’s where they are commonly applied:

  • Businesses: To see if they’re making money, keeping customers happy, and hitting sales goals.
  • Marketing: To check if ads and social media bring in customers and get people to click and buy.
  • Sales: To track how much is being sold and how salespeople are doing.
  • Customer Service: To ensure customers are getting help fast and happy with the service.
  • Making Things: Monitor how fast products are made, whether they’re good quality, and whether there’s enough stock.
  • Healthcare: Watch how healthy patients are cared for and how happy they are with their treatment.
  • Schools: To look at how students are doing if they graduate and how teachers perform.
  • Work and Employees: To see if employees like their jobs, how often they leave, and how well they’re trained.
  • Tech Stuff: To monitor if computers and systems are working smoothly and keeping data safe.
  • Shipping and Delivery: To track how fast things are shipped, costs, and if items are delivered on time.

Example

For example, a retail company might track its success in boosting sales by looking at sales growth as a KPI.

This involves comparing sales figures from now to those from before.

If the company aimed to raise sales by 10% from last year, the sales growth KPI would show if they met this goal, helping managers know if they need to push sales more or fix any problems.

Related Terms

References

1. Wikimedia Foundation. (2023, November 14). Performance indicator. Wikipedia. https://en.wikipedia.org/wiki/Performance_indicator

2. Twin, A. (2024, January 30). Kpis: What are key performance indicators? types and examples. Investopedia. https://www.investopedia.com/terms/k/kpi.asp

3. Arnold, J., Becker, M., Dickinson, M., Lurie, I., Marsten, E. (2012). Web Marketing All-in-One For Dummies. Germany: Wiley. https://www.google.com/books/edition/Web_Marketing_All_in_One_For_Dummies/BK7NTMtQd5cC

4. Setijono, D., & Dahlgaard, J. J. (2007). Customer value as a key performance indicator (KPI) and a key improvement indicator (KII). Measuring Business Excellence, 11(2), 44-61. https://www.emerald.com/insight/content/doi/10.1108/13683040710752733/full/html

5. Hennigan, L. (2023, April 24). What is a KPI? definition & examples. Forbes. https://www.forbes.com/advisor/business/what-is-a-kpi-definition-examples/

6. Stojanovic, F. (2023, November 13). What is a KPI? A comprehensive guide with tips and examples. Databox. https://databox.com/what-is-a-kpi

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