What is a KPI?

A KPI is a Key Performance Indicator.  Not just any performance indicator.  A KEY performance indicator.  The term KPI is used in business to describe the most important measures that tell you how your business is performing.

Key Performance Indicators

KPIs help you figure out where there are opportunities for improvement. 

Remember, “What gets measured, gets done.”  So your challenge is to select the KPIs that matter most to your business, and discard any that are not relevant or may promote bad performance.

 

Example of a Good KPI

Gross Profit Margin (Gross Profit as % of Sales) – this is a measure of how much Gross Profit you bring in for each dollar of sales.  In general, the more the better.  When would would a higher Gross Profit Margin not be better?  When it costs you sales.  If you raise prices to achieve a higher gross profit, it could be that you drive customers into the arms of your competitors. 

Another way to increase this measure is to focus your selling effort on those product lines with the highest Gross Profit Margins.  This usually is a good way to generate more gross profit.

Yet another way to increase this Indicator is to find alternate suppliers, or buy in larger quantities, or pay cash up front to existing suppliers.  You can see real quickly that focusing on a single KPI can cause things to run amuck.  That is why we have dashboards to monitor a number of KPIs at the same time.

Example of a Bad KPI

Lines of code per day

Back in the early days of computing, a measure of programmer productivity was the number of lines of code written per day.  All things being equal, this may not have been a bad measure.  We observed one company where the programmers started making their programs longer and less efficient when told that their performance was being measured based on the lines of code per day.  The lesson:  be careful what you ask for.  People respond to how they are measured.

KPI Libary

While researching this article, I came across a website / company devoted to KPIs.  They have a collection of over 6,000 KPIs from all sorts of businesses around the globe.  Some of them they offer in sets according to the type of business, or department within a business.  They collect benchmark data as well to help you see how you compare to others.   Highly recommended: www.kpilibrary.com

SurvivalWare

Of course, beware of self-reported KPIs that do not include the detail.  We recommend SurvivalWare as the first line of attack – for getting accurate data out of your accounting system and combining it with other operational data to form the backbone of your KPIs and Dashboards.  The mapping feature of SurvivalWare is what saves you from the laborious and error-prone keying of data into spreadsheets.

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