What is the Role of the Key Performance Indicators in Measuring Performance?
Key performance Indicators (KPIs) play an essential role in the performance management system of an organization. KPIs provide an objective viewpoint of your company’s performance, relative to your business goals and to any other industry benchmarks. Leaders at all levels of the company can walk through their business and get a subjective sense for what is happening by listening to employees and seeing the business activities that are occurring, but that is not enough. Without objective data how do managers and leaders know what levers to pull to improve results?
Example of KPI’s in the Real World
Let’s take sports as an example. How does a Basketball team, coach, and player measure success and know what to do differently to win more games, make more baskets, or sell more tickets? To be able to solve for these issues, they use KPIs. For our purposes we will focus on the individual KPIs or metrics. In basketball some of the statistics reviewed are Field Goals, Field Goal Attempts, Three Point Field Goals, Free Throws, Offensive and Defensive Rebounds, Assists, Steals, and the list goes on. A coach will review these statistics and use them in coaching the player. As an example, a player may have a lower Free Throw Percentage than most of the players on the team or it could be below the goal or performance target set by the coach. Because the coach has this data he/she is able to specify what skill the player must work on to achieve improvement. These actions become a part of the Performance Development Plan / Performance Improvement Plan for the player.
What Key Performance Indicators Should Measure
To ensure a well balanced scorecard of performance there are three key areas to ensure you cover when measuring performance:
- How much – You should measure the volume of work completed by your employees. This provides an overview of ultimately how productive they are. Whether in taking calls in a call center or making widgets, volume is a critical component for driving performance results.
- How fast – Another critical KPI area is how fast or quickly your employees are moving through their work. Turn times illustrate the rate at which an employee can complete a work activity.
- How well – Ultimately no employee, team or company will be successful if a quality product is not produced so it is critical that at least one of your key performance indicators include a quality measurement. This KPI ensures that while your employees are producing a positive level and are doing so efficiently, that they are also focused on the ultimate creation of a value adding product or service for your customer.
Frequency of Key Performance Indicators
The frequency for measuring performance can and should vary by organization. Often times this is driven by external demands such as reporting results to investors and stock holders. Whatever the summary frequency, it is also important that you break your KPI’s down into daily, weekly, or monthly views as well when measuring performance. This provides employees with a picture of their performance that is easier to digest and take immediate action on. It also enables your goal setting conversations to be much more meaningful as you can break the monthly or quarterly goal down to what actions or steps can be taken each day with each work item. This helps the employee to own their own performance.
