A performance indicator or key performance indicator is a type of performance measurement.
An organization may use KPIs to evaluate its success, or to evaluate the success of a particular
activity in which it is engaged. Sometimes success is defined in terms of making progress
toward strategic goals, but often success is simply the repeated, periodic achievement
of some level of operational goal. Accordingly, choosing the right KPIs relies upon a good
understanding of what is important to the organization. 'What is important' often depends
on the department measuring the performance - e.g. the KPIs useful to finance will be
quite different from the KPIs assigned to sales. Since there is a need to understand
well what is important, various techniques to assess the present state of the business,
and its key activities, are associated with the selection of performance indicators. These
assessments often lead to the identification of potential improvements, so performance
indicators are routinely associated with 'performance improvement' initiatives. A very common way
to choose KPIs is to apply a management framework such as the balanced scorecard.
Categorization of indicators Key performance indicators define a set of
values used to measure against. These raw sets of values, which are fed to systems in
charge of summarizing the information, are called indicators. Indicators identifiable
and marked as possible candidates for KPIs can be summarized into the following sub-categories:
Quantitative indicators that can be presented with a number.
Qualitative indicators that can't be presented as a number.
Leading indicators that can predict the outcome of a process
Lagging indicators that present the success or failure post hoc
Input indicators that measure the amount of resources consumed during the generation of
the outcome Process indicators that represent the efficiency
or the productivity of the process Output indicators that reflect the outcome
or results of the process activities Practical indicators that interface with existing
company processes. Directional indicators specifying whether
or not an organization is getting better. Actionable indicators are sufficiently in
an organization's control to effect change. Financial indicators used in performance measurement
and when looking at an operating index. Key performance indicators, in practical terms
and for strategic development, are objectives to be targeted that will add the most value
to the business. These are also referred to as 'key success indicators'.
Identifying indicators of organization Performance indicators differ from business
drivers and aims. A school might consider the failure rate of its students as a key
performance indicator which might help the school understand its position in the educational
community, whereas a business might consider the percentage of income from returning customers
as a potential KPI. The key stages in identifying KPIs are:
Having a pre-defined business process. Having requirements for the BPs.
Having a quantitative/qualitative measurement of the results and comparison with set goals.
Investigating variances and tweaking processes or resources to achieve short-term goals.
Key performance indicators are ways to periodically assess the performances of organizations,
business units, and their division, departments and employees. Accordingly, KPIs are most
commonly defined in a way that is understandable, meaningful, and measurable. They are rarely
defined in such a way such that their fulfillment would be hampered by factors seen as non-controllable
by the organizations or individuals responsible. Such KPIs are usually ignored by organizations.
A KPI can follow the SMART criteria. This means the measure has a Specific purpose for
the business, it is Measurable to really get a value of the KPI, the defined norms have
to be Achievable, the improvement of a KPI has to be Relevant to the success of the organization,
and finally it must be Time phased, which means the value or outcomes are shown for
a predefined and relevant period. In order to be evaluated, KPIs are linked
to target values, so that the value of the measure can be assessed as meeting expectations
or not. KPI examples
Marketing & Sales Some examples are:
New customers acquisition. Demographic analysis of individuals applying
to become customers, and the levels of approval, rejections, and pending numbers
Status of existing customers Customer attrition
Turnover generated by segments of the customer population
Outstanding balances held by segments of customers and terms of payment
Collection of bad debts within customer relationships Profitability of customers by demographic
segments and segmentation of customers by profitability
Many of these customer KPIs are developed and managed with customer relationship management
software. Faster availability of data is a competitive
issue for most organizations. For example, businesses which have higher operational/credit
risk may want weekly or even daily availability of KPI analysis, facilitated by appropriate
IT systems and tools. Manufacturing
Overall equipment effectiveness, is a set of broadly accepted non-financial metrics
which reflect manufacturing success. Cycle Time – Cycle time is the total time
from the beginning to the end of your process, as defined by you and your customer. Cycle
time includes process time, during which a unit is acted upon to bring it closer to an
output, and delay time, during which a unit of work is spent waiting to take the next
action. Cycle Time Ratio – CTR = Standard Cycle
Time / Real Cycle Time Utilization
Rejection rate IT Operations
Availability / Uptime Mean time between failure
Mean time to repair Unplanned unavailability
IT Project Execution Earned Value
Estimate to Complete Labor Spent / Month
Dollars Spent / Month Planned Dollars / Month
Planned Labor / Month Average Time to Delivery
Tasks / Staff Project Overhead / ROI
Supply chain management Businesses can utilize KPIs to establish and
monitor progress toward a variety of goals, including lean manufacturing objectives, minority
business enterprise and diversity spending, environmental "green" initiatives, cost avoidance
programs and low-cost country sourcing targets. Any business, regardless of size, can better
manage supplier performance with the help of KPIs robust capabilities, which include:
Automated entry and approval functions On-demand, real-time scorecard measures
Rework on procured inventory Single data repository to eliminate inefficiencies
and maintain consistency Advanced workflow approval process to ensure
consistent procedures Flexible data-input modes and real-time graphical
performance displays Customized cost savings documentation
Simplified setup procedures to eliminate dependence upon IT resources
Main SCM KPIs will detail the following processes: Sales forecasts
Inventory Procurement and suppliers
Warehousing Transportation
Reverse logistics Suppliers can implement KPIs to gain an advantage
over the competition. Suppliers have instant access to a user-friendly portal for submitting
standardized cost savings templates. Suppliers and their customers exchange vital supply
chain performance data while gaining visibility to the exact status of cost improvement projects
and cost savings documentation. Government
The provincial government of Ontario, Canada has been using KPIs since 1998 to measure
the performance of higher education institutions in the province. All post secondary schools
collect and report performance data in five areas – graduate satisfaction, student satisfaction,
employer satisfaction, employment rate, and graduation rate.
Further performance indicators Duration of a stockout situation
Customer order waiting time Human Resource Management
Employee turnover Employee performance indicators
Cross functional team analysis Problems
In practice, overseeing key performance indicators can prove expensive or difficult for organizations.
Some indicators such as staff morale may be impossible to quantify. As such dubious KPIs
can be adopted that can be used as a rough guide rather than a precise benchmark.
Key performance indicators can also lead to perverse incentives and unintended consequences
as a result of employees working to the specific measurements at the expense of the actual
quality or value of their work. For example, measuring the productivity of a software development
team in terms of source lines of code encourages copy and paste code and over-engineered design,
leading to bloated code bases that are particularly difficult to maintain, understand and modify.
Often times where there is a lack of understanding of how to develop good measures companies
will resort to using percentages to quantify their measure. This is wrong and shows that
the company did not do enough research on the measure.
See also Business intelligence
Business performance management Community indicators
Dashboarding Data presentation architecture
Gap analysis ITIL
Key risk indicator Network performance
Overall equipment effectiveness References
^ Carol Taylor Fitz-Gibbon, "Performance indicators", BERA Dialogues, ISBN 978-1-85359-092-4
^ Key Performance Indicators – What Are Key Performance Indicators or KPI
^ Pursuit of Performance Excellence: Business Success through Effective Plant Operations
Metrics. A MESA Metrics Research Study. February 2012
^ KPI Examples by Field ^ "Key Performance Indicators". Colleges Ontario.
Retrieved 2013-05-25. ^ Robert D Austin, "Measuring and Managing
Performance in Organizations" ^ Martin Fowler. "CannotMeasureProductivity".
Martinfowler.com. Retrieved 2013-05-25. Further reading
David Parmenter, Key Performance Indicators. John Wiley & Sons 2007, ISBN 0-470-09588-1.
Bernard Marr, Key Performance Indicators: The 75+ Measures Every Manager Needs to Know.
Financial Times/ Prentice Hall 2012, ISBN 978-0273750116.