April 29, 2014 – Vicki Pero – Insights
Key Performance Indicators – Why They Really Do Matter
My first lesson learned in the early 2000’s measuring business performance was a true KPI had to answer the question, “Why does this matter?” Specifically, while pretty much any business process can be measured and reported on, KPI’s can tell business managers what to focus on and change mid game to better improve bottom line results.
A key to selecting KPIs is to first understand how they’re different from metrics. Both have value; metrics, which can be either lagging or leading, measure results as opposed to KPIs, which are always leading indicators, measure those activities that drive the end result.
Think about it this way: when reviewing a quarterly P&L you notice that monthly parkers have dropped year over year. This drop is a metric; it’s a historical fact that’s reported on after month close. To improve monthly parker volume you set a target for the Monthly Parking Specialist to make three sales calls each month for the next quarter to tenants within the building to meet a new parker target of 36 new accounts by quarter end. Monitoring the sales calls and new account sign ups are the KPI’s – these measures indicate within the quarter what the end result will likely be, providing the opportunity to monitor and adjust the plan accordingly so meeting the overall goal is much more predictable.
To evaluate if your KPIs are delivering the value you intend, check the following:
- How many is too many? It’s a common question, especially when first starting to evaluate business performance through KPIs. The common recommendation is no more than 10-12 at the company level; 2-3 at the departmental level. Remember, KPIs are to drive activities and decisions – too many KPIs may result in too many tasks and internal folks simply just can’t get to all of them.
- Who truly drives KPI activity? It’s a common thought for companies to believe that only the executive team can track and affect the business through KPIs. Actually those closest the business process have the most impact and need to be in the loop on the KPI and own it. This approach provides accountability and employee engagement. I just had a VP tell me the other day that because her team reports on their own KPIs, they come to the table with plans to fix issues, which is expected, but also plans to improve the overall product in new and innovative ways.
- Most importantly: KPIs must have a direct link to the company’s strategic priorities. If KPIs sit outside of the company’s primary areas of focus, it’s highly unlikely they’ll be viewed as meaningful or of value. If your company has a KPI that isn’t somehow tied to the strategic plan, this is a very good time to ask, “why does this matter?” and more times than not, you’ll probably find it’s time to either change or drop that particular measure.