What are Key Performance Indicators (KPIs)?
KPIs help us to measure how well companies, business units,
projects or individuals are performing compared to their strategic
goals and objectives. Well-designed KPIs provide the vital
navigation instruments that give us a clear understanding of
current levels of performance.
KPIs as navigation tools
Just like on an ocean-liner, where the captain and crew need
navigation data to understand where they are relative to their
planned sailing route. Indicators like GPS location data, speed,
fuel levels, or weather information allow the team in charge to
make decisions about where to steer next.
This is exactly the same for companies or government
organisations. Here, KPIs are the vital navigation tools that
managers use to understand whether the business is on a successful
voyage or whether it is veering off the prosperous path. The right
set of KPIs will shine light on the key aspects of performance and
highlight areas that may need attention. Without the right set of
KPIs managers are sailing blind.
The problem with selecting the right KPIs
The trouble is that there are 1000s of KPIs to choose from and
companies find it hard to select the right ones for their business.
Managers mostly struggle to identify the vital few management
metrics and instead collect and report a vast amount of everything
that is easy to measure or simply pick the KPIs everyone else seems
to be using. The other extreme is where companies, business units,
project team or individuals have little or no KPIs to understand
their performance levels.
Our research finds that less than 10% of all the metrics that
are collected, analysed and reported in businesses are ever used to
inform decision-making. 90% of the metrics are wasted, or worse,
used to drown people in data while they are thirsting for
KPIs as key decision-making tools
Effective decision-makers and managers understand that they need
information on the key dimensions of performance and that this can
be achieved by distilling them into the vital KPIs. Similarly to
the way a doctor would go about trying to understand someone's
health. Instead of measuring random things a doctor would focus on
key health measures first, such as body mass index, cholesterol
levels, blood pressure, and sugar levels.
In our organisations, the most effective KPIs are closely tied
to strategic objectives and help to answer the most critical
business questions. A good starting point is therefore to identify
the questions that the decision-makers, managers or external
stakeholders need to have an answer to. One or two so-called Key
Performance Questions (KPQs) should be identified for each
Once the most important business questions have been articulated
it then allows companies to select or develop the right KPIs that
best help answer them. That way all KPIs will be strategic,
relevant and meaningful.
To learn more about KPIs and metrics browse our free KPI
library, read our books, articles and case studies or
get in touch if you would like to discuss our KPI consulting or