The Art and Science of defining KPIs

How do you measure success?

Key performance indicators (KPIs) are the best tools used to measure and monitor whether your business or department is on course for success or whether you’ll come short of reaching your monthly quarterly, or annual goals. The problem is that many managers don’t understand how to identify the most vital metrics and instead collect and report on anything that is easy to measure.

But that strategy doesn’t usually do anyone any good. Misleading or irrelevant reports can result in mixed messages, confusion and employees focusing on the wrong thing. Resources can be severely wasted and results fall short of expectations.

For best results, key performance indicators need to be:

• Outcome-oriented. They need to be tied to a specific objective such as customer satisfaction.
• Target-based. They have a time-sensitive goal.
• Rated or graded. You need to be able to measure the gap between the goal and what’s achieved.

Most importantly, your KPIs should demonstrate the return on investment that’s directly related to your efforts.

The right KPIs are going to be industry-specific and depend on the characteristics and processes of your company. To wring the most value from your KPIs, select the data that shows a pattern of activity over a period of time. Then be sure to review it from several angles. For example, KPIs for a sales team might begin with the conversion rates on the individual level, measuring the number of calls that were converted to appointments, the number of appointments that were cancelled, the number of appointments that led to presentations, and the number of presentations that resulted in sales.

But there are flaws to this strategy, if not seen in a bigger context. For example, a strong team performer might easily achieve the target number of conversions and then see no reason not to slack off, if there’s no incentive to go beyond his individual performance. But an additional team-based KPI would provide incentive to strong performers to support or collaborate with the weaker members of the team to achieve the team’s collective goals.

You can use KPIs to monitor all aspects of your business, not just sales, of course. The four general areas that offer the greatest insights from KPIs are:

• Measuring and understanding your customers
• Measuring and understanding your financial performance
• Measuring and understanding your internal processes
• Measuring and understanding your employees

KPIs must be reflective of your business strategy and mission. After all, they don’t only supply a peek into performance levels and trends. They help to identify weaknesses and areas where positive reinforcement would be valuable. They should:

• be thoroughly understood by employees
• clearly identify to employees what successful performance consists of
• clearly distinguish between successful and unsuccessful performance
• must quantify events and behaviors that can be observed

Developing and setting KPIs may take time and hard work, but the results will be critical to your bottom line. ClicData gives you the power to manage these controls more easily than ever.