What are KPIs or Key Performance Indicators?
Key Performance Indicators or KPIs give you an objective way to understand how well your business is meeting its objectives or goals – or not.
KPIs can also be described as performance metrics, performance ratios, or business indicators. They are used by teams and leaders to keep track of and evaluate the performance of business processes and individuals across all departments and have proven to be highly effective.
At the employee level, KPIs can be used to measure performance and manage underperforming staff members, structure incentive payments such as bonuses, and also identify training and career development opportunities for team members. Job descriptions can include KPIs to express what the role is expected to achieve. This helps set the expectation between employer and employee right from the start.
What type of KPIs are there and how important is it to get them right?
Depending on your business’s objectives and goals you can track many different KPIs. It is very important to choose the right KPIs from the outset, otherwise, you may end up measuring something that is not aligned to your business strategy and goals.
The main types of KPIs include business KPIs, financial KPIs, sales KPIs, marketing KPIs, and project management KPIs. Each department within a business measures different KPIs because they all have different focus and goals.
Common examples of KPIs
Below are some common examples of KPIs relating to Sales and Project Management:
- New sales – the total number of new sales made, or deals closed in a specific timeframe
- Sales growth – the percentage increase in total sales compared with a previous period
- New customers – the total number of new customers achieved from the sales prospects
- New leads of prospects – the total number of potential new customers obtained
- Lead-to-sale conversion rate – how many qualified leads turn into closed sales
- Level of customer engagement – obtained from customer satisfaction surveys
Project management KPIs
- Budgeted cost of work scheduled – the estimated, planned, or budgeted value of the project tasks at the time of reporting
- Actual cost – how much money has been spent on the project to date. Actual cost is compared against budgeted cost to see if a project has stayed on budget
- Cost variance – the difference between budgeted cost and the actual cost
- Schedule variance – the difference between the scheduled timeline and actual, indicating how far ahead or behind schedule and budget your project is.
- Missed milestones – number of milestones not completed on time. It’s used to track larger schedule trends rather than micromanage each milestone.
- Tasks completed – a percentage of total project tasks that are finished at any given time, indicating progress toward completion.
For employees, here are some other examples of KPIs:
- Provide input and contribution to ideas at team meetings
- Undertake and complete additional training or professional development to upgrade skills, competency and knowledge
- Develop and practice coaching skills to enable direct reports to perform at higher levels
Set SMART Performance Indicators
The key to setting KPIs is to identify desired outcomes for the company then cascade these down to specific business and team goals and then to individuals. This ensures the right work is done at the right time by the right people and ensures everyone is on the ‘same page’.
Employee goals should align with business and team goals which of course need to be constantly re-assessed in light of the changing business environment. Changes should be clearly communicated to employees and put into context. Whether it be increasing profit, reducing costs or acquiring a certain number of new customers, the KPIs must relate to a specific desired business outcome.
Good KPIs should be objective, measurable, and able to show a trend or comparison over time. The KPI should measure the performance necessary to reach the desired outcome but is not a goal in itself e.g., in the case of employee sales calls the KPI should not be the number of sales calls made to prospects, but the number of sales calls to prospects that are converted to a sale.
It is better to focus on a few key metrics instead of many irrelevant ones.
SMART is a simple tool designed to assist in drafting performance measures that are clear and will be instrumental in achieving business objectives.
SMART KPIs are:
- Specific – specific KPIs avoid any confusion about what’s going to happen. They define what results are expected.
- Measurable – measurable KPIs can be assessed objectively; they define quantity, cost or quality. For example: ‘respond to all customer requests’ or achieve an average quota of 70’.
- Attainable – attainable KPIs are those that the individual has influence over within their role. They are challenging, but achievable.
- Relevant – relevant KPIs make sense within the individual’s role and scope of influence. They may be solely responsible for the achievement of the KPI, or contribute to its achievements along with others.
- Time-Bound – time-bound KPIs ensure required results are delivered. If the results are to happen by a certain date the goal must have a deadline. If results need to occur on an ongoing basis the goal should specify how often, for example: ‘per day’, ‘once a month’, ‘within 24 hours’ or ‘quarterly’.
Review KPIs regularly
Project and business goals and requirements can shift unexpectedly and the metrics you measure will also change as your company grows and scales. Therefore, it is recommended that you review your KPIs on a regular basis to make sure they’re still tracking progress in a meaningful way. If you find they aren’t, find new KPIs that more effectively help you communicate your goals, and make sure everyone in your business knows how they contribute to success.