A business owner needs to know how its business is travelling. Like a driver driving his car, the driver needs a dashboard to tell him how fast he is driving, when he is going to run out of petrol or if his engine is overheating. Key Performance Indicators (KPIs) in a business tell the business owner exactly that!
KPIs are often mistaken for Key Reporting Indicator’s (KRIs). All KPIs have the following 3 things distinct to them:
Key & Critical - having too many KPIs almost guarantees the failure of another KPI, they must support each other. I think 5-10 KPIs is ideal. Too few means you are not measuring everything that is critical for your business and too many mean you run the risk of your team members not becoming engaged with each KPI and just 'going through the motions.'
Forward looking - a KRI is backward looking whereas a KPI is forward looking. A true KPI will paint you a picture of what your future KRIs will look like. The most important part of a KPI is that if the KPI is painting a picture that the business is off track, it tells you exactly what to change in your business in order to get back on track. For example: - KRI - # sales transactions per month - KPI - # sales meetings in diary for next 30 days
Accurate - when you measure the KPI, i needs to be accurate. There is n use having the best KPI but not measuring it with accurate data. KPIs should drive your team's behaviour. The team should be measured based on the business's KPIs. Therefore, if they are not accurate, the team will have less influence over them and they won't align themselves the with KPI.