Definition
Key Performance Indicators or most commonly termed as KPI is a set of quantifiable measures that an organization uses to gauge or compare performance in terms of meeting its operational and strategic goals. Once an organization has analyzed its mission, identified all its stakeholders, and defined its goals, it needs a way to measure progress toward those goals. Key Performance Indicators are those measurements.
Key Performance Indicator (KPI) is a navigation tool
Just like on an airplane, where the captain and crew need navigation data to understand where they are relative to their planned flying route. Indicators like GPS location data, speed, fuel levels, or weather information allow the team in charge to make decisions about where to steer next.
This is exactly the same for companies. Here, KPIs are the vital navigation tools that managers use to understand whether the business is on a successful track or whether it is diverting from the planned path. The right set of KPIs will shine light on the key aspects of performance and highlight areas that may need attention. Without the right set of KPIs managers are sailing blind.
How to use it
Key Performance Indicators are used in four main areas: Revenue Improvement, Cost Reduction, Process-cycle time improvement and Increased Customer Satisfaction. Before KPIs can be identified, the following requirement must be met;
- A predefined organizational process
- Clear business objectives for the process
- Quantitative and qualitative measurements
- An active approach to finding and remedying enterprise variations
KPIs are above all else, a set of indicators to measure data against, a sort-of enterprise success gauge. Ultimately, they help an organization assess progress toward declared goals.
