A Key Performance Indicator (KPI) is a measurable value that demonstrates how effectively an organization is achieving key business objectives. Managers use KPIs at different levels to assess the success of reaching goals. If you want to know how well you or your team perform you should know how to create and use KPIs.
You can measure many different metrics, but not every metric can be “key”. If they are all special, then really none of them are. You should select metrics that are most closely aligned with your critical business objectives. This subgroup of metrics become your KPIs. KPIs keep your focus on the things that matter most to keep your business alive and well.
But don’t think you need to use only KPIs and forget about other metrics. When one of your KPI behaves in a strange way, you need to be able to look at other metrics to properly diagnose the problem.
KPIs should follow the SMART criteria. This means the measure has a Specific purpose for the business, it is Measurable to really get a value of the KPI, the defined norms have to be Achievable, the improvement of a KPI has to be Relevant to the success of the organization, and finally it must be Time-phased, which means the value or outcomes are shown for a predefined and relevant period.
Follow these steps when defining a KPI:
For example, let’s say your goal is to increase the viewability of ads on your website. Here’s how you might define this KPI:
If you can’t measure it, you can’t manage it.
To evaluate your progress and results you need to create a table with following columns:
Weight should be more than 5% and never exceed 60%, otherwise this metric will become so important that others become insignificant and can’t be considered as “key” indicators. Total weight of all KPIs must be 100%.
Now let’s create such a table for our imaginary KPIs:
You see that two of the three metrics couldn’t reach the target value, but all of them exceeded limits. Total effectiveness is a sum of weights multiplied by the effectiveness of each KPI. In our example it’s 102.6%, so we can consider this year very productive.
I hope this article helped you better understand how to define, use and evaluate KPIs. Do you use KPIs in your work? Share your opinion with me in the comments section below.