Key Performance Indicators

Over the years, I have come across more key performance indicators (KPIs) than I can remember. And quite honestly, not all of them were particularly meaningful or valuable.

While this is true, people often end up keeping KPIs that don’t have much value. This is because it’s easy to justify keeping them if that’s just the way things have always been done. Here’s how some people go about doing this:

What Is a KPI?

Simply put, a KPI is the measurement of a concept that can be compared to a specific benchmark. You can then see if the concept under scrutiny is performing well or not. There are many benchmark options out there. A few examples:
  • The KPI result of another organisation
  • The industry average
  • The KPI itself from another point in time

Knowing the industry average of something you’re measuring can help raise important questions, for example:

Why has 80% of the team quit their job over the last 3 months? The industry is only showing 4%.

What Is a Meaningful KPI?

Designing and creating a good KPI shouldn’t be too straightforward. A common mistake we see is people getting things started in Excel before even properly defining the goal. Get the whiteboard out, think, and discuss.

How to Define a KPI?

The task of finding the holy grail of KPIs can be intimidating, and you might not know exactly where to start.

John Whitmore proposes a structured way of thinking, which is discussed in The Decision Book. The idea is that a goal should tie back to the ever-so-catchy SMART, PURE, and CLEAR backronyms. Ensuring that your KPI ticks all these 14 boxes will greatly increase your chances of success.

And this effort shouldn’t be made alone. The owner of the KPI might want to involve their favourite data friend in this conversation. You certainly don’t want to do this work all over again just because the required data isn’t available.

How Many KPIs Do I Need?

As much as people like using business jargon, sometimes they can’t see the forest for the trees; ‘K’ in KPI stands for ‘key’. In other words, there should be a reasonable number of them, and not too many — a choice overload is only a distraction.

Simplicity is the ultimate sophistication

The reality, however, might be that you have (too) many keys. If that’s the case, perhaps those could be ranked in order of priority, and their reporting frequency could depend on their criticality. The most important ones might be reported on a monthly basis, and the remainder on a quarterly, semi-annual, or even annual schedule.

Will Behaviours Be Impacted Positively?

When things get measured, people change. What might only be a number with traffic lights on a CFO’s scorecard can actually represent a real struggle for some areas of the workforce who need to drive that number. Thus, coming up with a KPI can really have an impact on culture and behaviours. Tread lightly.

This is when the Positively Stated, Ethical, and Environmentally Sound aspects of the KPI design become relevant.

If these three criteria are underestimated, the KPI itself may impair an employee’s well-being, as they might perhaps feel controlled, restricted, policed, and under the pressure of constantly being evaluated. This situation becomes a dangerously fertile ground for Goodhart’s Law: ‘When a measure becomes a target, it ceases to be a good measure’.

A KPI must inspire people to control the business problem itself. Meeting the KPI target should not be at the expense of the intended business performance and other areas of the business.

If an IT manager were to implement a metric to track the number of closed service desk tickets as a proxy for business efficiency, they are in fact fostering a culture of quantity over quality, and the more complex tickets might be pending for a long time.

This post discussed what a KPI is, some guidelines on how to design one and some traps to avoid along the way. Ideally, these metrics will be able to assess the health of different areas of an organisation, and not just consist of another painful routine to update at the end of each month. These results can play an important role in developing solutions and monitoring them: Let the KPIs work for everyone, not everyone for them.

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