Developing effective KPI metrics for your business
Key performance indicators (KPIs) are valuable measurements used to assess the progress in achieving a business objective. Developing and visualizing effective KPIs to measure is an essential part of carrying out and achieving business objectives.
If your business is considering developing KPIs for different departments or business functions, it’s important to remember that this process can take time and consistent improvement. In this article, we will highlight how to set effective KPIs and what you can do to ensure the adoption of those KPIs across your business.
How to decide on good KPIs
Each KPI should be a simple quantifiable measure that can be quickly understood to represent progress in a business objective. A KPI should tie meaningfully and directly with a goal. It should be something that will make a difference in business outcomes, meaning that it should not be used to track metrics that don’t correlate with increased performance.
Define what is most important
When deciding on a KPI ask yourself: What is my goal? How will achieving this help my business? Who does this KPI concern?
Another important thing is to consider who is the intended audience for the KPI. Is it for an individual employee? The executives? The whole company? How will they see the KPI regularly?
Short- vs long-term KPIs
Many have found it best to set both short-term and long-term KPIs. Often the short-term KPIs can be goals that lead up to the long-term KPIs. These short-term KPIs can be for a week, month or quarter, while the long-term KPIs will normally be for a quarter or a year, though sometimes even longer.
When developing and deciding on a key performance indicator, it is helpful to keep the SMART goals in mind. A KPI should be Specific, Measurable, Attainable, Realistic, and have a set Timeframe.
Align KPIs with business goals
It can be beneficial to select a KPI that is more narrow in scope. For example, it may be a goal to achieve a certain increase in revenue. However, the best KPI to measure that might not be revenue but rather sales which will impact revenue. Likewise, trying to break down goals into subgoals can be helpful for generating more specific actions from a KPI.
While having several KPIs is good, it is also important to not create too many as this can lead to a lack of focus on each one. Look at your business to determine a reasonable amount to focus on and choose the most important ones.
How to visualize KPIs
Key performance indicators should be quickly seen and understood. It can be helpful for a business to show their KPIs for employees or executives immediately when signing on so they can quickly understand where the business is in regards to their goals. A benefit of visualizations is that they allow a lot of data to be viewed as a simple summarized number, chart, or graph.
Timely data
It is also helpful to ensure the data is updated regularly (usually at least daily) to best aid in gauging the current business situation. Likewise, a dashboard is most effective when it updates on its own without relying on a person to run a program or query or refresh something themselves.
Color
Colors will also play an important role when displaying visualizations of KPIs. It is common that if a KPI is being met or exceeded, it will display in green. When it is just below the goal, it can be displayed in yellow or red, and if it is even further down it can be shown in red. These colors can help with very quickly identifying where the business is in regards to the KPI.
Simple visualizations
A simple visualization of a KPI could just be, and is usually best when it is a number, percent, or dollar amount that shows something in large numbers that is quickly visible and sticks out on a dashboard. This number can also include colors that change based on set conditions of the KPI.
Graphs and charts can also be useful when displaying KPIs. They can help show a comparison of where the business is at compared to where they want to be and this may help increase the overall visual appeal of a dashboard. These may also be good visuals to have in a drill-down option rather than the primary number or visual for a KPI.
Be flexible with KPIs
A key aspect of establishing KPIs for your business is to understand that they are only as effective as you make them. Oftentimes, companies establish goals and metrics that become forgotten for a variety of reasons. When developing KPIs be sure to follow these steps:
Check KPIs often
It is important to check on KPI progress regularly and assess how the business is doing in regards to meeting those objectives. Often when looking at and reviewing the KPIs, employees and executives will notice that they are not exactly where they either expected to be or wanted to be. This may require, or benefit from, an adjustment to previously decided on key performance indicators.
Make adjustments where necessary
Sometimes the KPIs may need to be adjusted to reflect a more current and realistic goal. Sometimes the business does better than expected and will want to continue to push themselves to achieve more than they had previously anticipated. However, other times, employees and executives of the business may realize they aimed too high or had an unexpected event happen that caused them to be well below expectations. In both situations, it may be appropriate to adjust the KPI to ensure it is obtainable while still encouraging employees to stretch themselves.
Involve the team
When assessing the accuracy and benefit of a KPI, make sure to include team members from all aspects of the business. From key executives to individual contributors, everyone should have a say in defining the success criteria for a KPI. As individuals and teams become aligned across the business, you will see incredible progress and results for the KPIs you have set together.
How can I get started using KPIs?
By now, we’ve established just how important KPIs can be in helping your business focus on its key objectives. An important part of KPIs is having access to the right data and tools to create the KPI. Businesses of all sizes have turned to business intelligence (BI) tools to help facilitate KPI creation.
BI tools facilitate KPI creation
BI tools are specifically designed to create dashboards and visualizations that can help you track your KPIs. They are incredibly useful tools because they allow business users to easily connect to the data they need to power the KPI. That data can then be updated daily to create real-time dashboards.
BI also allows businesses to easily share dashboards and KPIs across the company because it is cloud-based software. All a user needs is an internet connection and a simple web browser to access the dashboard and view the KPIs that matter most to them.
Getting started with a BI tool
By using a BI tool, businesses can facilitate faster and more effective KPI creation. Getting started with a BI tool is incredibly easy for businesses of all sizes and types because they follow a subscription model tailored specifically to your business. If you are a small business and only need a few users, you can purchase a BI tool that fits your unique needs. Then, as your business grows, you can easily scale the tool to new members of the team. BI is cloud-based with the infrastructure being fully managed by the business, meaning less headaches for you and your team.
Conclusion
KPIs are a valuable tool to keep track of how the business is performing and help executives to know what metrics will be most advantageous for the company to focus on. Having effective KPIs can help improve efficiency, revenue, productivity, or any other important measurable aspects of a business. Learning how to decide on, track, and visualize KPIs is essential for any company in the world today.