Knowing how to develop key performance indicators is very valuable as Key Performance Indicators (KPI) or Key Success Indicators (KSI) are used to measure the performance of on organization towards their ultimate goals. Key Performance Indicators are quantifiable measurements which reflect the critical success factors of an organization. KPI differs according to the goals of the organization. Examples of KPIs are,
• In the health care, the number of patients waiting at the emergency unit for more than an hour.
• In a university, the graduation rates of its students.
• In the Customer Service Department, the percentage of customer calls answered within an hour.
• In a social service organization, the number of clients assisted during the year.
The KPI’s must reflect on the goals of the organization, must be key to its success and must be measurable. KPIs are long term focus. KPIs also measure the performance by comparing results against standards or with other organizations in the same industry. This is useful for the organizations to recognize the areas that require further improvements and also to bridge the gap between the current and the desired level of performances.
The method to develop key performance indicators
In the rapid changing business environment, it is crucial to identify the most important factors that affect on the business performances. In order to select the most essential factors for the success of the business it is important to get the support of the employees, suppliers and the customers.
This process can be explained in few steps as follows:
Initially, it is necessary to identify the expected results of the organization. Therefore, establish clear goals that reflect the vision in various areas of the company such as asset management, revenue and profit, etc. Review the business goals of the organization, and apply these to the desired results. The expected result needs to be more specific. For an example, a company that is making $20 million worth sales within a year might want to set a goal of $25 million sales within a year. The goal of achieving sales revenue worth of $25 million is more specific.
Cascade the goals into specific objectives. Establish the requirements and activities that are necessary to achieve those objectives. Prepare a flow chart to map the processes required to reach the set goals.
Identify the current progress level of the company. Key performance indicators work alongside specific company activities. Therefore, when developing indicators for future activities require an understanding of what has already occurred or is in the process of occurring. If the company has a goal of making sales worth of $25 million a year and is currently making $20 million sales within a year, the company is achieved 80% of its goal.
Determine the percentage of change that has occurred within each area of review. This will enable to create more effective goals for the future. Finally, it is necessary to establish the frequency of reviewing these indicators.
• KPIs are used to measure the performance of a business organization.
• KPIs differ according to the goals of the organizations.
• KPIs can be categorized into sales KPI, marketing KPIs, financial KPIs, etc.
• KPIs must be SMART; specific, measurable, achievable, related and time bound.
• KPIs are used to reduce the gap of the current performance level and the desired performance level of the organization.