How should I choose a KPI that benefits performance management?
Key Performance Indicators (KPIs) are great tools to set quantifiable objectives for your business. However, you must pick the right KPIs that fit in with what your business does, how it does it, and how it might be able to do it better. How you'll do this depends on what you're aiming to get out of your business in the near future. Below are our tips on how to set effective KPIs for your business.
Avoid KPI overload!
The first step is to narrow down what's really important to your success. Too many core KPIs running at once will divert your attention in too many directions, confuse and clutter reports, and may set unrealistic expectations for growth, development, and progress. A maximum of five key quarterly performance targets is recommended for an average-sized business.
Identify core areas for improvement
If you're looking to improve overall or local performance, you'll need a way to measure current attainment as a variable number. Weekly profit, items produced per day, sales made per day, conversion rate per week, employee productivity, and customer satisfaction (out of ten) are all good starting points to consider when designing a business management KPI.
Don't make the field of focus too large or too small for a performance KPI - you're not in total control of the market. Conversely, concentrating on micromanaging Gary from marketing to greater heights might prove a waste of your efforts. Risk Indicators, the delegation of KPI and PPI monitoring to middle managers, and Personal Performance Targets will probably prove more worthwhile.
Apply SMART criteria
Once you've decided what you want to improve, you'll need to set a realistic, measurable target for the improvement to meet and designate a timeframe in which you'll want that improvement to happen. This could be expressed in the form of a percentage increase, a lump sum to be earnt, or a set number of tasks to be completed.
Applying the SMART method will help you here. Each KPI you pick should be Specific, Measurable, Achievable, Relevant, and Time-bound. Making sure your goals are realistic and linked to what your organisation actually does will build a solid foundation for your future success.
Pick your subject and timeframe
Profit alone isn't necessarily the ultimate KPI. Ultimately, it's more important that you monitor the long-term growth and sustainability of your business. Metrics such as customer feedback, staff morale, and percentage growth in sales and marketing may be better indicators of success than current cash flow, which can fluctuate greatly. Growth stages are also important to consider. If your company is just starting up, it's better to underestimate your performance than set spectacular KPIs more at home in a unicorn start-up than in use at a regular, small-scale enterprise. You may face disappointment and confusing results otherwise.
While precise deadlines aren't usually recommended (except for events and product shipping), quarterly cut off points (e.g. Q4 2020) are good for setting a rough point of attainment. By measuring KPI progress over time, you can monitor whether you've exceeded or fallen short of your expectations in a more appropriate way than performing one assessment on an arbitrary, set day.
It's worth keeping in mind that performance KPIs won't always be that scientific, particularly with customer feedback. Many KPIs require careful interpretation to accurately measure and assess.
Monitor your progress
Modern KPI software allows you to track KPI improvements in real-time with the right inputs, logs, and sensors. You should make full use of this to check your trajectory over time, as you can make adjustments to your overall plans and correct for any unexpected events. If you need to record data manually rather than rely on login timestamps or sales receipts, make sure you have the capability, time, and budget to run customer satisfaction surveys. These consume huge resources and are best completed online, if possible.
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