To be efficient the key performance indicators or KPIs should respect the following prerequisites :
- the KPI is always related with the organization’s objectives and is defined at the management commitee level or at the middle management level
- the KPI is quantifiable and easy to understand
- it allows to take critical decisions regarding to organizations strategy
- KPIs must be created in a limited number to guarantee their efficiency
- KPI must be updated and communicated regularly (it is a motivation element and KPI users should be able to evaluate the consequence of their action in time)
The KPI is always related with the organization’s objectives
Those two KPIs are fundamentally different. The first doesn’t apply to the second organization and vice versa.
This shows that it is fundamental for the organization to define its strategic objectives before implementing KPIs that will have to measure those objectives achievement.
The KPI is quantifiable
A Key Performance Indicator must reflect a valor, it must exist a way to define it precisely and to measure it. As an example, a KPI about customer loyalty is useless if it is impossible to distinguish the new from the old customers.
It is also important to maintain the KPI definition from year to year to guarantee the data historical coherence.
Each KPI must have its associated target. Thus, a company that wish to obtain a good social climate will have among its KPIs the HR turnover rate. Once its calculation formula defined and its measurement parameters established (which data, which publication frequency, which calculation tool…), the goal that has to be reached is clearly defined and understood by the process participants (in this example, it could be to “reduce the HR turnover by 7% per year”).
When the objectives are clearly established by the organizations, the KPIs are evident.
The KPI allows to take critical decisions regarding to organizations strategy
Good KPIs generate action.
There is no lack of information inside the companies, the challenge is to be able to define the information that will help to take good decisions.
Discerning dashboards include around ten KPIs maximum. The ideal is between 5 and 8.
KPIs have been created with a synthesis goal in comparison with the spreading of available information inside the organizations.
It is important to make sure that the KPIs :
- are sent to the good persons and not to people not involved in the process (their productivity will be lowered).
- really add value to the information and guarantee, as explained previously, the possibility of action.
- are really used by their recipients.
The KPI must be updated and communicated regularly
KPIs are efficient only if people consult them sufficiently often to remember to use them when a decision has to be taken.
Except for sales activity that need a close follow-up and then a daily reporting, KPIs generally need to be communicated once a week.
KPIs, once communicated, must be discussed during weekly meetings.
It is thus wise to communicate them with sufficient advance to guarantee that the people will have enough time to analyze them.