KPI term is for key performance indicators, the KPI concept is about
measuring and controlling business performance focusing on the most important
performance indicators. Does this concept works? How to make use of it?
There might be a number of viewpoints on KPI, and this concept can be used on
various level of organization. For instance, CEO might use KPI to measure and
control business, also, some managers can design and use KPI for their
Does KPI approach work? Yes, in sense, it gives you a necessary information
structured and represented in a certain way, but how good does it work? It
depends on who have designed your KPI, who is gathering data to be inputted in
KPI system, how do you analyze and use this data.
First, the most important is KPI design. Fill the difference between
indicators that represent the total company profits per month, company profits
segmented by regions and company profits segmented by region, customer
education, customer social position. It’s obvious that these tree metrics are
good for different views only, for instance, CEO might be interested in total
profit only, while regional manager need to know how other regions are
Other sample of bad indicators set is when there are two indictors telling
about the same thing from different viewpoints. For instance, it is bad idea to
have “Profits by region” indicator and “Support requests by region”. It seems
that having two indicators will show something about the regional office, but
actually it is not true, as both indicators depends on the regional
characteristics, such as the number of potential customers and the number of
leads. When designing key performance indicators one should consider factors to
be connected with root indicator, but not with each other.
Even if you have a great KPI system, it will not work, if the incoming data
won’t be analyzed, sorted and represented correctly. It’s important to make sure
that the person who will be analyze and represent information for KPI also
involved in KPI design process and know what is the goal of certain metrics and
why it was used some metric and not the other one.
Working with well designed and prepared KPI system is an easy task. But still
one should remember about limitation of KPI system. It is not designed to show
your business in details, also, it just represents someone’s viewpoint on how
the business processes should be organized. It is important to keep KPI system
up today, as what worked yesterday will not show anything today.
Finally, few words about tools that can help to design KPI system. There are
some expensive business systems that allow to work with KPI, but still these
systems will not help to design and keep updated KPI indicators. So, before
purchasing expensive system consider designing a test version using some
spreadsheet software, such as Excel. Give KPI concept a try, find out if it
works for your business and in what way. Having requirements list you will be
able to get what you really need.
About the Author
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