Key Performance Indicators give you an insight into the current and future performance of your business or area of the organisation. If their benefits are to be realised they need to be effectively developed.
Key Performance Indicators (KPIs) are a set of measures that are critical to the current and future performance of the business. While this seems obvious, many organisations either fail to develop or develop inappropriate performance measures. So how can you develop effective key performance indicators?
Know where you are going as a business
In essence the start point for developing your KPIs, is knowing where your business is going. What is the vision for the business or your area of the business if you are part of a team? Without clarity about where you are going, how will you know whether you are on or off track?
Set SMART goals
Once you have got the clarity on the bigger picture on where your business is going, it is time to start to develop some SMART goals. These are specific, measurable, achievable, results orientated and time limited outcomes that you want. It could be market share, balance sheet strength, manufacturing excellence or web–site traffic ranking.
Determine the key drivers
For every SMART goal, there will be certain key drivers that will determine whether that goal is achieved. For example, if going for market share, one of your drivers might be attracting new customers through advertising or joint ventures. Alternatively it might be through merger or acquisitions. It is best to start with a long list of drivers for each goal and then to narrow down to those that are critical.
Develop key measures
Having established what the key drivers are that will influence the achievement of your SMART goals and realisation of your vision, it is time to develop your key measures. In a nutshell, they are the simple but highly effective measures that tell you whether you are on-track or off-track. They let you know whether what you are doing is working or not and whether change might be needed.
Key performance indicators are important contributors to business success. Developing them in a systematic way is essential if you are to avoid a series of haphazard and inappropriate measures.
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