by Jacinth Klee

Created on: December 04, 2009

Everyone talks about KPI, but what exactly does it mean? There are many definitions; generally Key Performance Indicators (KPI) are described as financial and non-financial measures to help define and assess progress towards organizational goals. Is there a simpler explanation?

It begins with the Vision - a picture of the future. It is a desired level of where you want your company to be. It could be getting your company listed in the stock exchange, winning a place among the Top 500 companies or expanding your business globally. Next is the Mission - what you have to do to achieve that Vision. To realize these goals, you must identify your Key Result Areas, the areas or factors that are critical for success in your organization. The measurement of these areas is the Key Performance Indicators (KPI) or Key Success Indicators (KSI)

You use KPIs not only to measure performance, but also to drive your business. It is imperative to know the present position of your business, or how near or far you are from your targets. With this crucial information, you can formulate your strategies, plan for improvement or correct deficiencies in your organization.

Once the company has established its mission and vision, the management team especially the heads of departments, will adopt the company objectives and from these, cascade down for their own departments or divisions. From the departmental objectives, the Key Result Areas are identified. The departmental KPIs form the basis of measurement for the heads of the department and their staff, specific to their job functions. Once the Key Result Areas are established, strategies must be determined and action plans mapped out.

An example of a Key Result Area is responsive customer service. The KPI could be measured through customer feedback or the number of complaints received. The ultimate goal is minimal or zero complaints. Strategies employed to achieve this could be through recruiting professionals, or providing training to existing personnel. Examples of steps in an action plan could be - conducting a recruitment exercise for new staff or mapping out a training plan for the staff.

KPIs are employed in every aspect in an organization to measure performance and monitor progress. It can be implemented to evaluate customer service, business processes, innovation or financial health of an organization. KPIs provide direction and a proper system of monitoring and measurement for the management and employees of a company. If complemented with a reward system, it can motivate staff to enhance their performance and productivity to meet or exceed expectations.

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