One of the most important concepts that is adopted in companies, nowadays, are the key performance indicators (KPIs).
These are predetermined factors that are set to assess the performance or success rate of an entity. They are set in order to know how much development is done on a project, how employees are performing, and the direction in which the firm is heading.
They differ from entity to entity, and are to be set considering the nature and type of the business or a particular practice. For example, a school might use the annual graduation rates as a KPI, whereas a business may consider it to be the revenue to cost ratio or level of customer satisfaction.
A crucial point to note is that they should have the ability to be measured, in short, they should be quantifiable. Vague or generic statements such as 'being the most reputed company' or 'generating repeated customers' cannot be thought of as good KPIs for a firm, since these factors cannot be measured.
Instead, the 'number of new customers over old ones' and 'the ranking or profits of an organization' would be more appropriate.
There are many benefits of using key performance indicators in any organization. Foremost, they help the company to find out which departments or verticals are performing well and which are not. They can terminate unnecessary projects and use the resources somewhere else in the business.
Another significant benefit is that they enable employers to determine if a change in process or policy has been effective or not.
They also aid in data collection and analysis for future comparison. Process-based KPIs can even be used in the performance appraisal. Similarly, there are many other advantages according to the nature and type of the business entity.
Types of Indicators
The first type are the quantitative indicators that include results which relate to numbers. The second type are those which are measured in terms of performance of an employee, team, or a practice. Directional indicators help the company to find out if the processes are moving towards meeting organizational goals.
For a marketing process; KPIs can be new leads generated, amount of customer attrition, collection of payments, and other aspects. On the other hand, in a manufacturing firm; it can be the overall efficiency of the product, and the rate of rejection in the testing process.
Defining the KPIs is an essential task that has to be carried out by the management. Usually, the organizational level goals are further drilled down into KPIs for each department and employee. They provide each member of an organization a clear picture of what is expected from them and how can it be achieved.