Key Performance Indicator

Key Performance Indicators (KPI) are financial and non-financial measures or metrics used to help an organization define and evaluate how successful it is, typically in terms of making progress towards its long-term organizational goals. KPIs can be specified by answering the question, "What is really important to different stakeholders?". KPIs may be monitored using Business Intelligence techniques to assess the present state of the business and to assist in prescribing a course of action. The act of monitoring KPIs in real-time is known as business activity monitoring (BAM). KPIs are frequently used to "value" difficult to measure activities such as the benefits of leadership development, engagement, service, and satisfaction. KPIs are typically tied to an organization's strategy using concepts or techniques such as the Balanced Scorecard).

The KPIs differ depending on the nature of the organization and the organization's strategy. They help to evaluate the progress of an organization towards its vision and long-term goals, especially toward difficult to quantify knowledge-based goals.

A KPI is a key part of a measurable objective, which is made up of a direction, KPI, benchmark, target, and time frame. For example: "Increase Average Revenue per Customer from 10 to 15 by EOY 2008". In this case, 'Average Revenue Per Customer' is the KPI.

KPIs should not be confused with a Critical Success Factor. For the example above, a critical success factor would be something that needs to be in place to achieve that objective; for example, an attractive new product.

Identifying Indicators of Organization

Performance indicators differ from business drivers & aims (or goals). 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 return customers as a potential KPI.

But it is necessary for an organization to at least identify its KPIs. The key environments for identifying KPIs are:

Having a pre-defined business process (BP).
requirements for the business processes.
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.

Categorization of indicators

Key Performance Indicators define a set of values used to measure against. These raw sets of values fed to systems to summarize information against are called indicators. Indicators identifiable as possible candidates for KPIs can be summarized into the following sub-categories:

Quantitative indicators which can be presented as a number.
Practical indicators that interface with existing company processes.
Directional indicators specifying whether an organization is getting better or not.
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 strategy development means are objectives to be targeted that will add the value to the business most (most = KEY INDICATORS OF SUCCESS).

Associated Topics:
Balanced Scorecard
Business Intelligence
Business Performance Management
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Key risk indicator
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