KPI – measures, performance indicators

“If you can’t measure it, you can’t manage it” – this statement by Peter Drucker perfectly captures the meaning and essence of measures, indicators, benchmarks and other business management tools.

This is why Key Performance Indicators (KPIs) are so important in the process of measuring and achieving companies’ goals. They provide a foundation for building a results-oriented company culture or serve as a source of objective feedback for employees, managers and boards. KPIs are a tool enabling quick decision-making, planning activities or reacting to emerging problems.

In order to have full control over what is happening in an organisation, knowledge based on reliable information is essential. But how do you know if your company is meeting its growth targets? Are employees delivering the required outputs? Are administrative costs too high in relation to revenue – and if so, where can savings be made?

A benchmark proves to be crucial.

Performance indicators, i.e. defined levels of achievement of specific tasks, are such a benchmark, providing a basis for further analysis of the performance of the company and its employees.

How do you define KPIs?

The best, most effective organisations integrate strategy into everything they do. Indicators should be linked to the company’s objectives at all levels and, as far as possible, reflect the relationships between them. There should also be appropriate performance indicators for this purpose, which can take many forms (depending on the specific organisations, market situations or even the information you want to derive from them).

In general, indicators can be categorised into:

• direct – showing e.g. volume, value of sales,
• result – showing e.g. margin, % margin,
• efficiency – showing e.g. sales to resources used, conversion,
• dynamic – showing changes over time,
• ranking – showing position in a particular group,
• or benchmark (internal, external) – comparing with a specific group.

What should be the characteristics of a well-chosen KPI?

If we want the KPIs planned by the process of measuring strategy implementation to be valuable, to provide real benchmarks and for the organisation to derive tangible benefits from them, we should pay particular attention to several key factors/areas when selecting them.

• It’s not just the “what” that matters, the “why” is also important – Remember that a presentation of only “bare” financial indicators will not fully reflect reality. Without having a fuller perspective, and relying on them alone, erroneous conclusions can be reached.
• Matching indicators to usage – example: distinguishing between measurement and evaluation. While the measurement of results should be as accurate, detailed and expressed in absolute measures such as quantities, currencies, etc. as possible, the evaluation of results should be expressed in relative indicators that allow a reliable assessment of performance.
• Coherence – a uniform glossary of indicators, clearly understood by the owners. Example: if we use the same indicator in different areas of the organisation then it should measure exactly the same values.
• Adequate accuracy – Let us not go to extremes, let us apply the criterion of relevance. Both under-information and overload of detailed information are not desirable, and on top of all this, speed of delivery is important. (What good is the best data if we get it late?).
• Sustainability – the methodology for measuring and calculating indicators should guarantee their continuity over time.
• Feasibility – Even the best-designed indicators will be of no value unless they can be calculated in a sufficiently efficient way. It is therefore crucial to check the availability of source data and the possibility of obtaining them in the future.
• Data presentation – information should be provided in a way that is tailored to the individual user or group of users, at the expected time and location.

Can reporting tools, Business Intelligence tools come to our rescue with all this? Of course not…. no. Tools alone are of little use. They will, for example, help us in the area of ‘feasibility’ (ensuring continuity of data provision), but if our process is not well thought out, they may report dozens of reports that are of little or no use to anyone. The tool should be the last point when implementing our strategy process. And worse still, just as it is not easy to implement the right measurement process… an equally hard road may await us when choosing the right IT solution.

If you want to find out how Cogit can help you with the implementation of KPIs, please contact us by email info@cogit.pl lor call +48 22 496 60 00.