Business value metrics

Key performance
indicators (KPI)

Get up to speed on key performance indicators and learn how it can help you drive business
value with our curated collection of insights, reports and guides.

What is KPI?

KPIs also known as “Key Performance Indicators” are measurable values used to gauge how effectively a company is achieving key business objectives. KPIs can be used to monitor large scale business objectives and the overall health of the company. They can also be used to monitor the success of business objectives within various departments within a company, and can even be used on an individual level to monitor employees’ key objectives.

Defining key performance indicators can be tricky business. The operative word in KPI is “key” because every KPI should related to a specific business outcome with a performance measure. KPIs are often confused with business metrics. Although often used in the same spirit, KPIs need to be defined according to critical or core business objectives. Follow these steps when defining a KPI:

  • What is your desired outcome?
  • Why does this outcome matter?
  • How are you going to measure progress?
  • How can you influence the outcome?
  • Who is responsible for the business outcome?
  • How will you know you’ve achieved your outcome?
  • How often will you review progress towards the outcome?

As an example, let’s say your objective is to increase sales revenue this year. You’re going to call this your Sales Growth KPI. Here’s how you might define the KPI:

  • To increase sales revenue by 20% this year
  • Achieving this target will allow the business to become profitable
  • Progress will be measured as an increase in revenue measured in dollars spent
  • By hiring additional sales staff, by promoting existing customers to buy more product
  • The Chief Sales Officer is responsible for this metric
  • Revenue will have increased by 20% this year
  • Will be reviewed on a monthly basis

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Machine Learning is a type of artificial intelligence that enables systems to learn patterns from data and subsequently improve future experience.

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Why does KPI matter?

To be useful, once you’ve set your KPIs you should double check to make sure they are well defined and quantifiable and then you should communicate them throughout your organization and department.

Once they’ve been communicated, they should be monitored and reported on a regular basis. KPIs are typically put together in a visual report called a dashboard. Like the dashboard on a car, a business dashboard allows you to see your KPIs quickly, and easily understand whether you are getting closer or farther away from your goal (similar to how car dashboard tells you when you are about to run out of gas, or when your car may overheat).

In order to better communicate your KPIs with your team, it’s helpful to create a large visual dashboard that show the changes in KPIs over time and post it somewhere that people will see it often. This will give your team a constant reminder of the goal, the important factors that contribute to that goal, and whether they are moving in the right direction over time.

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The benefits of KPI

KPI reporting can clearly communicate the progress of a company towards its performance goals. Not only the managers can access key results in an instant and transparent manner, but also make informed strategic decisions. Here are the top benefits of investing in a great KPI reporting tool for your organisation and management.

1. They Let You Measure Results : Measuring is an important part of KPI reporting. It is the primary key that informs you about the success or failure of your work. You need to measure the progress made towards the achievement of your target: the number of sales increased (sales performing), the number of new customers or anything in your business you want to measure. KPIs provide actionable information because they are always measurable and quantifiable. For example, if one of a hotel company's identified CSFs maintains a high level of occupancy throughout the year, a KPI would be the percentage of occupancy of rooms, measured on a weekly basis, using the previous year as a benchmark.

2. They Help You Set Business Goals : You need to set a target and aim to reach it in a set period. You can set more than one targets and create different keys for each of your targets to ensure you measure your progress and then try to achieve your goals. It's often difficult to keep all departments or teams within an organisation aligned and working toward common goals. Once an organisation's Mission, Vision and CSFs have been written into a strategic plan, KPIs break down complex information into understandable metrics and provide feedback on the organisation's progress. Communication of progress toward KPIs keeps everyone moving forward in the same direction.

3. They Offer Incentives to Your Team : KPIs are often linked to incentives. Teams or individuals are offered an incentive to improve their KPIs to a particular level during a specific time period. In order for this to be successful, the KPIs have to be clearly understood and quantifiable, and reporting must be accurate. The information provided by KPIs empowers people to improve their own personal performance along with that of the organisation.

4. They Help Your Find Issues in Your Business Strategy : Managers can use KPI to identify any issues present in the construction of business. Any type of problems such as labor productivity issues, danger to employee safety and failures to meet the expectations and needs of customers. KPI enables businesses to recognise these issues to take appropriate action to rectify these problems. Companies can also resolve customer’s issues and concerns with the help of KPI by analysing feedbacks from clients to check whether the expectations of clients are met or not. This approach also helps in eradicating future potential issues that may occur in the future projects.

5. They Let Your Discover Strengths in Your Strategy :With the KPIs, companies can easily unearth potential strengths to use any opportunities that you can use to enhance the performance of your business. Businesses can easily find the strengths whenever a post-project review shows a high score and this score indicates your performance in your performance. Companies can follow the same procedure to upgrade the performance of their company if your post-project review shows high score.

6. They Align Your Marketing & Sales Efforts:With help of KPIs, companies can easily measure and calculate all efforts that also includes marketing spend and sales department so that all departments can work in a harmonised way. When goals are decided by companies, team members start work in collaboration. This approach brings two departments closer for better insight.

7. They Save Business Expenses:With KPIs, you can easily recognise any cost saving prospects related to the project construction and also craft ways to curb any extra costs that may occur in future. KPI basically include tracking of uncommitted costs and also upsurges committed costs as and when required. Business can easily add factors like contingent costs and price escalation into the committed costs to restrict financial exposure. The knowledge that is gained from the audit can assist companies to manage all labor and material costs when they do bidding for construction in the future.

4. They Let Your Discover Strengths in Your Strategy :With the KPIs, companies can easily unearth potential strengths to use any opportunities that you can use to enhance the performance of your business. Businesses can easily find the strengths whenever a post-project review shows a high score and this score indicates your performance in your performance. Companies can follow the same procedure to upgrade the performance of their company if your post-project review shows high score.

Identify your business priorities and then determine how KPI can help.

The future of KPI

According to KENZ report “85% of organizational problems can be attributed to processes and management, while workers are responsible for only 15%” Aurel Brudan, CEO of smartKPIs.com Key Performance Indicators (KPIs) are among the most commonly used tools that companies employ to help manage more effectively and guide their progress. It allows for transparency to any “trouble-spots” and provides illumination to potential opportunities. In brief, KPIs are the top level data companies use to measure performance and plan for the future.

organizational problems can be attributed to processes and management

Aurel Brudan, CEO of smartKPIs.com Key Performance Indicators (KPIs)

Managers need KPIs for a number of reasons:

  • To determine where you have been and what performance looks like from the past
  • To track the progress of change
  • To plan and prepare where you are going, what success looks like in the future and identify how to achieve success

Key Performance Indicators (KPIs) help managers understand how their organizations are performing in relation to their strategic goals and objectives. When set and used properly, KPIs provide an indicator to senior managers and stakeholders as to how the organization is performing and whether performance is on track with projections.

Use KPIs in business as you would in your daily life. For example, if your objective is to lose 20 pounds, then that becomes your goal. To achieve this, you set KPIs (milestones along a timeline) to illustrate your progress toward your goal. For example, how many pounds do you want to lose each week; each month? Can you cut down on specific fatty foods and how will you measure that? Do you need to increase the amount of physical exercise? How do you plan to measure that? Or if your goal is to run a marathon, your KPIs are how many miles you can run in a day or in a week, etc.

The same is true within any organization. You establish a set of objectives first, and then use KPIs to measure your progress toward achieving those goals. It’s important not to confuse goals with KPIs. A simple example would be that your goal is to build your cash reserve to $100,000. Your KPI to reach that goal would be to add $10,000 per month to cash reserves. The metric would be how much cash you actually contribute toward the total goal. Or if your goal is to increase overall profits by 30 percent, then your KPI would be the amount of profit increase over the last 30 days.

The term “key performance indicator” tends to be misunderstood and overused. Managers tend to use a KPI as a catch-all descriptor to describe any form of measurement of business data. For KPIs to work for your business, you need to identify those metrics that matter to your business performance (see Pdf: “49 essential KPI Tips”). We will offer an overview of KPIs and how they are measured using a balanced scorecard, and then drill down into the KPIs that we use most frequently with our clients – those that relate to fiscal performance. As part of the discussion, we will also offer an example from one of our clients who were able to quadruple their profits with the help of KPIs.

KPI ethics

Throughout the past 18 months, we’ve witnessed a transformation in the ethics and compliance industry. Not too long ago, everyone was primarily concerned with checking boxes to meet regulatory requirements, not how to measure ethics. The biggest fears we faced involved courtrooms and unwelcome visits from government officials.

But, as we’ve discussed, everything changed in 2017 when the ‘Speak Up’ culture gained momentum. We only have to turn to this iconic Time Magazine issue that named The Silence Breakers as the Persons of the Year. For the first time on a massive scale, people and companies who had acted unethically were being called out in social media and on the news.

Now, we’re held responsible in courts of law and in the court of public opinion. People want to work for and buy things from companies that do good in the world. As a result, acting ethically is a competitive advantage, which means we have to work smarter when it comes to modifying employee behavior to help them move down the right path.

These goals drive everything we do at Convercent, and this spirit of being better and doing better comes up often during the roundtables and other events that we hold in the U.S. and around the world.

If you’ve ever wondered how to measure ethics or how real life compliance professionals just like you measure the effectiveness of their programs, join us for a recap of our most recent solutions forum in London. During the event, 40 leaders joined Convercent to discuss this changing ethics landscape, along with the most important KPIs we should all be measuring.

Organizations need to build trust with the public and be accountable to their customers and employees.

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