Key Performance Indicators

One of the most useful tools in any business is Key Performance Indicators (acronym KPI). To find the effectiveness of any process, some criteria needs to be identified to check how successful the process is. In this article we are going to have a brief look on what is key performance indicators, its benefits, how to setup and how to present it.

Key performance indicator is a business tool used to help businesses to understand to what extent their performance is acting out in reference to their strategic and financial objectives. In a widespread sense, KPI delivers the most central performance data to stakeholders to recognize if the business is on the right track or not. Furthermore, it assists to simplify the complex performance data of a business into a handy number of indicators that will help to make the right decision. The hint behind KPI is summarizing and presenting meaningful technical data using appropriate language that can be understood by ordinary stakeholders. Worthy key performance indicators are clear, obtainable, generate opportunities and initiate actions.

The importance of key performance indicators comes from the ability to show business leaders where are they compared to where they want to be. KPI can help to,

·         Assessment of the current position and how far it is from the desired one.

·         Cutting through existing oceans of data and providing simple and vital piece of information to support decision making.

·         Accurately measuring current performance and continuous learning from it to improve future results.

·         Ensuring compliance with internal and external regulations and requests.

Key performance indicators setup is a simple process, but we need to consider it first as a SMART indicator which means to be a specific, easy to be measured, easy to be achieved, real, and definite a time period. The smart KPI might be either an average of a quantitative data, i.e. average order value per month, and average production quantity per month, or a rate of qualitative data based on a selected criteria, i.e. rate of on-time deliveries, and rate of rejected purchase orders. The process itself starts with defining what is needed to be measured and find realistic, timely, and logical ways to measure it. They result needs to be compared to a preset standard which might be based on old performance or a near reality random value if KPI culture is adopted for the first time.

For more illustration, if we need to setup a KPI for measuring shipping capacity in a distribution center, the KPI used here for example is “number of trucks loaded per day”. This indicator is blind since there is several kinds of trucks which will have different time lapse to load. So we need to make sub KPIs related to the main one for every truck type to reflect the actual performance   

The presentation of the key performance indicators need to be easy to understand. The hint behind that is to choose the appropriate chart type to display, i.e. pie charts for percentages, bar charts for comparison, and line charts for trends. Also, it can just a number screen to display a single value which changes dynamically when new data is added.