5 tips to select good KPIs for your business
BusinessConstant tracking of progress is critical in all business endeavors. Equally important is the use of good performance indicators. Knowing what constitutes a good indicator is helpful in choosing the one that best suits a company. This article suggests five criteria for selecting actionable performance indicators for your business.
one. Develop a clear definition of each indicator
A good place to start in selecting appropriate key performance indicators (KPIs) is to examine the three words that make up the term, from your organization’s point of view.
· wrench suggests a guiding principle; something of critical or central importance to the organization. This means that not everything can be tagged as a key.
· Performance suggests a process; an action recognizable to everyone (or at least essential personnel) in the organization. This means that the activity is public (within the organization or the broader business environment).
· Indicator suggests a pointer; an indicator for a specific result in the organization. This means that an indicator tracks change over time.
Taken together, KPIs are indicators that track results of core importance to an organization. Typically, “core results” are formulated as business goals and embody the company’s survival (success) strategy.
When selecting good metrics, it is important to define metrics that provide objectivity when evaluating progress toward core company goals. Once selected, it is important to use the same KPI definition to ensure consistency during regular performance reviews.
two. be strategic
Generic indicators are not necessarily the best ones for your business. The ideal indicators originate from the central objectives of the organization. This means that a good place to begin the selection of performance indicators is a thorough internal assessment of corporate objectives considered critical to the survival of the company.
An internal assessment is vital as a benchmark for KPIs, so as company goals change, the associated metrics can change accordingly. This minimizes any confusion about the indicators and strengthens the links between them and the company’s objectives.
3. Focus on relevance and realism.
One of the most important reasons to track business performance is to encourage learning and improvement. The logical way to learn and improve is to use indicators that management and staff can identify with.
Relevance is vital to ensure the informed participation of employees and management whose performance is critical to the survival of the company. In addition, relevance encourages realism in goal setting. If the company consists of multiple departments, which are engaged in multiple projects, relevance makes tracking multiple goals manageable.
Four. quantifiable thinking
A corporate mission statement is the place for lofty expressions. KPIs, on the other hand, need to be reliably quantifiable. Measurement encourages transparency in business decision-making, particularly if the results influence the corporate rewards system (bonuses, promotions, stock options, etc.).
Depending on the quality of the underlying data, good indicators summarize business strategy in ways that take the guesswork out of performance management. Periodic reviews (quarterly or annually) allow comparison of trends, evaluation of established target levels and systematic review of goals. Measurement minimizes subjectivity in evaluating corporate achievements and individual employees.
5. use good data
While the criteria for selecting good performance indicators apply to all companies, the actual implementation is often a function of size. The more complex the organizational structure and activities, the more complicated business performance management becomes. However, in all cases, the use of good business data is paramount to reliability.
Understandably, small businesses can handle choosing a few key metrics, setting up the data collection process, regular measurements, and reviews with relative ease.
The data requirement of medium and large companies tends to be higher than that of small companies. This would explain why medium and large companies are more likely to implement IT support to facilitate the measurement and reporting of their performance metrics.
One such technology is business intelligence (BI) technology. BI software (fully licensed on-site or purchased on a SaaS platform) provides tools to efficiently collect, coordinate, transform, and report data to derive performance measures.
conclusion
Realistically, summary indicators are rarely perfect measures. However, their usefulness for monitoring organizational performance depends on how well the chosen indicators connect with the core objectives of a company.
Ensuring that selected indicators are clearly defined, strategic, relevant, and measurable improves the likelihood that they will foster realism, objectivity, and transparency in business performance management. Done manually or with the help of technology, good data is crucial for meaningful KPIs.