The Essence and Rules of KPI development

Before one person can manage well, one needs to have aspects to measure. It is in this regard that there is a need for KPI development. KPI means Key Performance Indicator. It is one of the most effective tools in the management system that corporate leaders, managers, and supervisors use to gauge the effectiveness of their employees. This is comprised of a set of metrics and accompanying scores based on what is desirable and what is unacceptable. In most cases, the middle score or passing score is equivalent to the actual expectation of the job. If the employee is meeting the expectation, then he passes the assessment.KPI is what is used to measure employee performance in a regular interval. This is the basis of managers if one is ready for a promotion, or if one person deserves an appraisal. It should be made clear to employees what these metrics in the Key Performance Indicators mean so they can work at par with the standards. KPI is also an indicator of how well the company is doing in different aspects of production. These numbers are commonly measured on a weekly basis so managers can forecast how the month will end as far as business is concerned. From these numbers, managers can formulate action plans that are specific, measurable, attainable, realistic, and time-bound. This is called the SMART approach.When developing a set of metrics, one should not base it on whims. There has to be a study to see if the metrics created are correlated with the financial health of the business. For example, it is useless to measure the attendance of employees if this does not really affect the company’s sales. You see, in many sales companies, a person can go to work for only once a week for as long as he meets his sales quota. This means that his daily attendance to work is not at all that important. What is important is the sales he generates. If this is the case, then the actual measurement of the employee’s performance should border heavily on the sales generated.First off, the person developing the metrics that will be measured should know exactly the target of the business. Some businesses have a pay-for-performance agreement with their clients. This means that the clients will not pay for the services if certain standards are not met. This is specifically so for the quality of the product. Some clients will require businesses to pay a penalty if standard quality is not met. This does not only apply to quality, but to other business issues as well. If the target is set too low, then expect employees to perform low as well.Also, the reports should be streamlined in a way that the results would not look complicated. What is important in KPI development is to show the variance of the actual performance from the target. The goal is that at a simple glance, any manager will be able to see the general health of the business, and will also see what needs improvement.