Key Performance Indicator?

A Performance Indicator or Key Performance Indicator (KPI) is an industry term for a type of Measure of Performance. KPI's are commonly used by an organisation to evaluate its success or the success of a particular activity in which it is engaged. Sometimes success is defined in terms of making progress toward strategic goals, but often, success is simply the repeated achievement of some level of operational goal (zero defects, 10/10 customer satisfaction etc.). Accordingly, choosing the right KPI group is reliant upon having a good understanding of what is important to the organisation.

What is important?

This often depends on the department measuring the performance - the KPI useful to a Finance Team will be quite different to the KPI assigned to the sales force, for example. Because of the need to develop a good understanding of what is important, performance indicator selection is often closely associated with the use of various techniques to assess the present state of the business, and its key activities. These assessments often lead to the identification of potential improvements; and as a consequence, performance indicators are routinely associated with 'performance improvement' initiatives. A very common method for choosing a particular KPI group is to apply a management framework such as the Balanced scorecard.

Measure performance and set targets

Selecting the right key performance indicators (KPIs) and using them effectively will help improve the performance of the business.

Selecting KPIs

There are a few things to consider when selecting key criteria that your KPIs should meet:

• They should be as closely linked as possible to the top-level goals for your business. See the page in this guide on deciding which key performance indicators to measure.
• Your KPIs should relate to aspects of the business environment over which you have some control. For example, interest rates may be a crucial determinant of performance for a given business, but you can't use the Bank of England base rate as a KPI because businesses have no power to change it. By contrast, a business' exposure to fluctuations in interest rates can be controlled and so this might make a useful KPI.

Getting the most from your KPIs

The purpose of performance measurement is ultimately to drive future improvements in performance. There are two main ways you can use KPIs to achieve this kind of management power.

1. The first is to use your KPIs to spot potential problems or opportunities. Remember, your KPIs indicate trends in your business performance. If the trends are moving in the wrong direction, you know you have problems to solve. Similarly, if the trends move consistently in your favour, you may have greater scope for growth than you had previously forecast.
2. The second is to use your KPIs to set targets for departments and employees throughout your business that will deliver your strategic goals. For more information about using target-setting to implement your strategic plans, see the page in this guide on how to set useful targets for your business.

Managing your information

As with most areas of your business operations, the more detailed and well structured the information you keep about your KPIs is, the easier it will be to use as a management tool. Commercial and potentially expensive computer-based management information systems are available for this purpose.

Inexpensive Solutions

Sol22 may be able to help you use what tools you already have within your organisation. These include MS Access, this is very much overlooked by most businesses as you need to be rocket scientist to develop with it! We can develop your management tools for you using Access and make it very user friendly. You can also use Microsoft Excel to present flow charts and other one off analytical compositions. However, excel may be restrictive for long term analysis and may be prone to breaking down just when you need it most, typically around the 5th day of each month when monthly financial reporting is occurring or quite simply, the file went missing on the server somewhere, or somebody accessed it and broke the formulae links. Talk to Sol22.com and get help with your KPI's.

Internet KPI Resources

• UK Business Link
• Set targets