What is KPI and what is its purpose?

KPI stands for Key Performance Indicator or “Key Performance Indicator” or “Performance Index” in Farsi. A key performance indicator is a measurable value that is used to track and evaluate how successful an organization, business, or even individual is in achieving its goals. In simpler terms, key performance indicators (KPI) are a way of measuring the performance of individuals, teams, or the entire company against the goals they are supposed to achieve.

To better understand, think of it as a dashboard that shows the performance of your business or organization. KPIs can be used for various aspects of an organization’s performance, such as sales, customer satisfaction, website traffic, and more.

To help understand the concept, let’s look at a simple and illustrative example:

Imagine a ship going from Qeshm to a port in Dubai. It is expected that this ship will bring its passengers and cargo to their destination within 4 hours.

During the voyage, the captain and the crew must observe the following:

  • Weather information
  • sea ​​state
  • Water friction
  • Ship fuel consumption
  • Average ship speed

The components listed are all key performance indicators, or KPIs, and help the captain and crew understand if the trip is going as planned or if changes need to be made.

KPIs are important because they provide a clear and measurable way to assess progress toward goals. By reviewing KPIs over time, you can identify trends and make data-driven decisions to improve performance.

It is important to choose the right KPIs for your goals. KPIs should Relevant, measurable and with overall strategy You are aligned.

What is the difference between a KPI and a metric?

A metric is a standard (or system) of measurement. Whenever you measure something, you use a metric, whether it’s monthly revenue, sales conversion rate, number of customers, the average age of your customers, or the number of people on your team with blue eyes.

A KPI is a type of metric, but specifically a metric that can measure performance and is deemed important.

In the following, we see the comparison of KPI and metric:

KPI Metric
period Specific time period Continuous and without interval
Target Track progress toward goals Continuous monitoring of business performance
Example Earning 300 million tomans in spring season Fixed monthly income chart

How many types of KPIs do we have?

When we come to the types of KPIs, we see a variety of answers. Some people categorize KPIs based on their type of function, and some categorize them based on the team’s work area. Here we are going to look at KPI segmentation from a bigger perspective.

We consider 2 main sections in terms of types of KPIs, which are based on:

1- To whom does it concern?

2- How they help the organization’s goals

Now each of these two main sections are divided into sub-sections.

1- To whom does it concern?

According to the first segmentation, we usually distinguish between 2 types of KPIs, based on the different organizational levels to which they apply:

  • High level KPIs: They follow the overall performance of the organization
  • Low level KPIs: They follow the performance of organizational departments separately, such as the performance of the marketing team, sales, human capital, development, etc.

2- How they help the organization’s goals

According to the second part, we distinguish between 5 different types of KPIs, based on how they help an organization, which include: input, output, process, project and result KPIs.

For better understanding and explanation, let’s advance each type by assuming that you own a tea shop.

1. Input KPIs: It measures the amount, type and quality of resources needed to produce the intended outputs.

In our example, these KPIs include:

  • Performance of suppliers who give you different types of tea
  • Tea quality
  • The quality of the storage rooms where you store the tea
  • Water and other bills
  • The cost of employees who work in your tea house

2. Output KPIs: They measure the result of input KPIs.

In our example, these KPIs include:

  • The taste of tea
  • Tea temperature
  • The power of tea

3. Process KPIs: They measure the quality and efficiency of equipment and processes involved in the production of desired outputs.

In our example, these KPIs include:

  • The efficiency of the equipment used to prepare tea
  • Efficiency of tea making method

4. Project KPIs: They measure and track the status of deliverables and progress towards project goals.

In our example, these KPIs include:

  • A marketing campaign that promotes your teahouse

5. Result KPI: Measures the achievements that result from your efforts to achieve a goal.

In this case, we also have 2 subsections that include:

  • Intermediate outcome KPIs (eg creating better brand awareness)
  • End result KPIs (for example creating a higher level of customer satisfaction as a result of better brand awareness)

KPI target

The main purpose of KPIs is to show exactly where your organization is compared to what you want to achieve:

  • are you on track
  • Are you behind?
  • Are you ahead of the curve?

For example, your goal is to reach 50,000 pageviews 6 months after starting your blog. The first 4 months pass and you realize that you have only reached 5,000 page views. A simple look at these numbers will tell you that you are falling short of what you want to achieve and need to evaluate your performance and plan accordingly for the future (e.g. change your strategy, lower your expectations, or simply put in more effort). do).

If you connect your KPIs to all of your business goals, it’s easier to review and evaluate your goals, and you can adjust your approach based on the data you receive.

What are the benefits of having KPIs?

KPIs have several critical benefits for an organization:

  • They define the current position of an organization along with future expectations.
  • They serve as a reference that you can use to compare past and present performance and draw appropriate conclusions for the future.
  • They define what is important in a business, so they help employees focus on achieving it.
  • They increase employee engagement and encourage them to pursue goals.
  • They hold employees accountable for their work by showing them what constitutes good performance and what constitutes poor performance.
  • They help maximize the use of resources and eliminate inefficiencies.
  • Employees feel closer to the organization’s goals.

Why are KPIs important for achieving organizational goals?

For too long, organizations considered only two components to manage teams and achieve business goals:

1. Create a plan

2. Implementation of the plan

The teams focused on the final goal, sought to fulfill their tasks, and finally, it was the end-of-season meetings that determined whether the teams were able to achieve their goals or not. The problem with this process was that the teams put in a lot of effort and the results were not desired by the leaders and managers, and on the other hand, since the results were determined at the end of the season, there was no time for correction.

In the early 90s, Peter Drucker introduced the concept of KPIs, which gave organizations a better way to understand teams’ progress on key business goals on a regular basis. In fact, Drucker can be considered the father of KPI.

In the next article, we will teach you how to define a standard KPI.

Source link

Posts created 2342

Leave a Reply

Your email address will not be published. Required fields are marked *

Related Posts

Begin typing your search term above and press enter to search. Press ESC to cancel.

Back To Top