KPIs or Key performance indicators are metrics a company or individual uses to assess their performance. They help you to assess a company or individual’s efficiency and productivity both.
1. What is KPI?
Every KPI is linked to a certain business goal, and comes with a set of variables that influence the outcome of that KPI; given the variables are working in favor the KPIs are good which in turn implies that the business goal behind the KPI is reachable.
This is valid in the vice-versa situation where the variables not in a good state will lead towards non-fulfillment of your business goal.
However, in case of non-compliance of the variables you can check why the variables are not following in line, work on the efficiency of the affected areas and achieve the business goal eventually after fixing the problem.
2. Who can Use KPIs?
Now, that you understand how KPIs work it will be easy to generalize that it is not just limited to a business or an individual, you can use KPIs for various activities like production, services, marketing, consulting, etc.
In easier terms, anybody or any organization that is clear about its goals and targets that they want to achieve can use KPIs to monitor progress for the same. However, if the target or the end goal is not clear, using KPIs makes no sense at all.
3. Why Use KPIs?
Given that the achievement of goals is facilitated by the use of KPIs, we can say that with the help of KPIs, one can find the problems in the system and fix them quickly to avoid any delay.
This is possible because there is a real-time performance analysis happening which helps understand the problems and provide appropriate tweaks in the plans or changes in strategies to reach the desired goal.
The efficiency of each step of a process is also determined by the help of it.
4. Problems with KPIs
The analysis of data and the interpretation is what helps us decide the next step in the process, but the issue to be escalated here is that it requires constant and perpetual monitoring which is very tedious, and only on an ongoing work with continuous scrutiny will you get high accuracy.
Also, since this is a perpetual process and then helps you to understand the flaws in your work by analyzing the data of a certain period, it implies that a long-term analysis is required to gain insight into even a very small indicator.
Another problem that comes along with this is employee dissatisfaction, by setting unrealistic goals the employees would try to improve the KPIs to achieve them however, since they are unrealistic they might not be happy when they can not achieve the same also, even if they do somehow it means the quality of work has been compromised in the process.
5. Categories of KPIs
5.1. Strategic
These are the high-level KPIs. They do not provide you with a snapshot of activities or the working at the high level, but a very rudimentary level tells you how the company is performing.
These include indicators like profit margin, total company revenue, or return on investment.
5.2. Operational
These are what come into play once you analyze the strategic KPIs.
The problems of that are solved using operational KPIs as they have a shorter time frame of consideration like the performance span is of a month or a day and done for different segments or geographies.
These KPIs are worked with by managers usually to fix the processes in the whole system to fix a big problem like maybe why the revenue is falling.
5.3. Functional
These are more specific in function, so maybe one set of key performance indicators for the marketing department, one for the finance department, and so on.
They will focus on one aspect within a company and a department, so a finance KPI can be working on the vendors’ accounting information when they are coming on board and similarly, a marketing KPI can be assessing what is the reach of a particular post/email or blog.
5.4. Leading/Lagging
These define what is the nature of the data that one is monitoring, does the data show upward or downward results; or whether it is showing that something is coming up or it has already finished.
6. How to Calculate KPIs?
- First step will be to define your goal, what you want to achieve and what is the part of your performance that you want to monitor and choose the aspect that needs analysis that will eventually help you reach your goal.
- Now choose the metric that will appropriately measure the goal that is desired.
- Next step involves gathering metric-relevant data.
- Then you calculate the KPI, for example, if 100 posts were surveyed and 75 posts received a high engagement rate in the last month, then the reach will be 75% (75 high-reach posts divided by 100 total posts surveyed).
- Analyze, track, and monitor the progress at regular fixed intervals, like monthly according to the example above. This is done so that you have a complete picture of the month-on-month progress with the engagement rate at the end of the year.
- So, now when you look at different posts at different times you can identify what content is getting the highest engagement, what is the correct time to post, and what other areas require improvement like what has to be done to get an engagement rate of say 85%. This will give you a clear analysis and hence help you to build a step-by-step solution for your problem.
- Communication is the last and among the most important steps of the whole process and sharing the information with the concerned department, customer, or manager will keep them informed and help them make better decisions to ultimately reach your goals more quickly and with better efficiency.
7. Final Notes
We have completely understood what key performance indicators are, how they work, and how they affect the working of your company or any individual in achieving the targeted goal.
This leads us to now know that the more concise are our KPIs, close to the planned values and with more achievable goals the more beneficial they are.
