The function of a KPI – Key Performance Indicator – is to measure an aspect of the performance of a service or organisation. The idea is, that if all the key elements can be identified, they should all add up to a complete picture of how well the service or organisation is doing.
Service or organisation? if a service is being measured the objective of the KPIs will be to measure the effectiveness of the supplier of that service. KPIs are often built into an overall Service Level Agreement (SLA). These are the monitored and reported on, probably monthly, and may well form the basis of a monthly meeting. This mechanism can prove invaluable in terms of providing an objective way of assessing service levels.
If a business is being measured the KPI – Key Performance Indicator – will measure an element that will be critical to the business’s success. All the KPIs critical to business success may be represented on a “dashboard”. The implication is that the business can be effectively driven from this dashboard.
What is measured? For a business key financial elements are important – turnover, profit, margin, assets, liabilities, debts and so on. But other aspects will also be critical – and will vary from business to business. Production output may be key. New sales enquiries may be instrumental in terms of sustaining a healthy business pipeline. Alternatively this may be new contract wins – or contract losses!
When setting a KPI – Key Performance Indicator – it is important to recognise the difference between those that measure input, and those that measure output. For example profit is clearly an output. On the other hand new sales enquiries is an input – it doesn’t achieve anything in itself, but is a means to an end. When setting a KPI – Key Performance Indicator – for a department it is vital to get it right. For example, it may be considered important to place an emphasis on achieving a high level of sales calls to new prospects. If this is prioritised over, say, upselling existing customers, it may prove to be counter-productive.
Cautionary note; be careful what you wish for.
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