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Key Performance Indicators (KPIs) help organisations understand how well they are performing in relation to their strategic goals and objectives. In the broadest sense, a KPI can be defined as providing the most important performance information that enables organisations or their stakeholders to understand whether the organisation is on track or not. KPIs help to reduce the complex nature of organisational performance to a small number of key indicators in order to make performance more understandable. This is the same approach we use in our daily lives.
For example, when you go to your doctor he might measure blood pressure, cholesterol levels, heart rate and your body mass index as key indicators of your health. With KPIs we are trying to do the same in our organisations. Organisations clearly understand what indicators are required for learning and improvement and focus on those. They then separate out the external reporting indicators if they are not relevant internally to avoid confusion and data overload. They then create the right set of goals / objectives to drive high-performance.
KPIs are there to give us information which helps us to make better informed decisions. Words, numbers, star ratings are all valid forms of measurement. What matters the most is that you measure the relevant things that will help you answer the questions that matter the most in your organisation. The word ‘indicator’ tends to be used rather than ‘measure’ and therefore a performance indicator ‘indicates’ a level of performance, rather than a measurement of it. When setting KPIs a good starting point is to come up with the questions you want to have an answer to before you start designing KPIs.
One or two so-called Key Performance Questions (KPQs) should be identified for each strategic objective. KPQs will help you collect the information required which in turn will allow you to design the right performance indicators to help you answer your KPQs. KPIs can be used to set organisational salary platforms. Once organisational goals and targets are set then KPIs can be structured for certain management positions to attain a bonus if these performances are reached within a set time period. This is used to assist reaching the targets and goals of the organisation.