What is a KPI? Key Performance Indicators
Oct 19, 2023
Key Performance Indicators (KPIs) are quantifiable measures of progress toward business objectives, and they help in focusing work on achieving operational or strategic requirements.
- KPIs can be powerful tools to engage and energize project teams, and they come in various forms, including proxy indicators that measure related aspects that are harder to quantify.
- KPIs can be leading indicators (measure progress towards goals) or lagging indicators (measure success after completing work).
- Good KPIs have six key characteristics, including providing objective evidence, measuring the right things, linking to organizational priorities, tracking performance over time, focusing on what matters, and being SMART (Significant, Measurable, Achievable, Relevant, Trackable, Ethical, Supported, and Time-bound).
- Creating effective KPIs involves asking the right questions about desired outcomes, influencing factors, responsible parties, measurement methods, progress review, and communication within the organization. Some companies, like Tesla, focus on a single "one metric that matters," while larger organizations use KPIs extensively to measure, track, and improve performance.
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There are two types of KPIs: leading indicators and lagging indicators. Leading indicators are early warning metrics that can help prevent problems, while lagging indicators are results-oriented metrics that show the outcomes.
- Understanding the relationship between leading and lagging indicators is crucial. In the example of a restaurant, customer satisfaction is a lagging indicator, but the time it takes for food to be delivered is a leading indicator.
- Focusing only on lagging indicators, like customer satisfaction, can be a problem because by the time issues show up in those metrics, it might be too late to address the underlying problems.
- To drive business success, it's essential to identify the lagging indicators that matter most and then work on improving the corresponding leading indicators to make proactive changes before issues affect the bottom line.
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