5 Star Accounting and BusinessBusiness What is a KPI? Here’s Your Answer!

What is a KPI? Here’s Your Answer!

Depending on where you look, the meaning of KPI – short for Key Performance Indicator – will be defined a little differently by everyone. This typically causes confusion among business professionals, which can hinder a company’s success.


KPIs are used by businesses to track progress, but too often, they are thought to be any metric or number that tracks business performance. That’s not quite enough to grasp the importance and effectiveness of KPIs as it relates to understanding organizational progress.


KPIs are measurable values that allow businesses to glean numeric insights into how well objectives are being met. KPIs can be used dynamically to measure how progress is being made on all levels of operations, no matter the size or scope. Further, KPIs can allow businesses to focus on the performance of specific departments. (Think about the types of things employees put down as part of their goals in a performance review – that is an individual KPI.) And while the whole organization may be greater than the sum of each part, KPIs can account for both – which can reveal valuable analytics about your business, why it’s successful and, more importantly, how to improve.


The bottom line is that KPIs are different for each company, that is why the definition of what they are often varies from industry to industry. They additionally vary from geographic region to region.


How to Determine Which KPIs to Utilize


The first step in identifying which KPIs will tell you the most about how your operation is running, is to focus on what you must measure. Avoid the tendency of some to measure anything and everything, and instead focus on KPIs that act as self-assessments.


Review your goals, ponder the direct impacts in your business that keep you up at night and those that are working the best, and why and how you can apply those same concepts or strategies to other areas of your business to improve underperforming KPIs.


The best teams work better together and outline a clear path toward positive outcomes. Search your company far and wide to determine which aspects of your business can be measured, and if they should be measured to determine which KPIs to utilize. It could be an indirect asset that is leading to sales that may have flown under the radar before, or marketing strategies that focus on the wrong product lines.


Remember: KPIs must drive behavior.


KPIs are not just descriptive, but also offer guide maps to follow. Ignoring the truths that KPIs reveal is like launching a sail boat without its rudder – you may reach a destination, but it’s not the one for which you aim.


When KPIs Fail


KPIs fail when they do not result in action. Lack of champions, relevance and accountability of KPIs are all negative influences that can stall momentum and excitement for company goals.


As your business determines which KPIs provide the greatest insight, it’s important to believe in the usefulness of usable metrics. Once there’s complete buy-in, then the true worth of KPIs becomes obvious.


Selecting KPIs ought to be an open and collaborative process that reveals the development of KPI champions. Their development is enhanced as others within the company opine about the importance of the work being done. This type of encouragement drives KPI champions to complete everything that was set out to do.


KPIs are invaluable tools that can be used across business functions. They provide dynamic insights into what businesses do best – and where they can improve. This real-time scorecard helps employees and managers alike stay on track, envision the future and greatly and systemically improve upon past successes.


If you need consultation to help you develop a business plan driven by KPIs so you can unlock any hidden potential, don’t hesitate to reach out to us.

No Comments

Leave a Comment