Key performance indicators

The key to success of a business is dependant on superior management information. Consequently while monitoring profitability and cash flows, a business also need to maintain its Key Performance Indicators (KPI) under a rigid check.

Key Performance Indicators are experimental measurements that reflect the critical success factors of an organisation. Based on earlier agreed measures, they disclose a high-level snapshot of the organisation. They differ depending on the kind of organisation they characterise; for instance a business may have a KPI as the annual sales volume, while KPIs of a social service organisation may have to do more with the number of people helped out. Furthermore, colleges may have number of students graduating per year, as one of their KPIs.

Thus before any Key Performance Indicators is chosen, it is important  to recognise what the organisation's goal is, which are in turn dependent upon its mission and its stakeholders. Subsequently, KPI perform as a measure of progress towards these goals. Whatever they may be, they must be significant to the success of the organisation.

The use of Key Performance Indicators provides business executives with a sophisticated, real-time scrutiny of the progress of a company. This may consist of mixture of reports, spreadsheets and charts. They may be sales statistics (global or regional), trends over time, supply chain information or any other long-term consideration which may be necessary in gauging the health of the organisation.

For a Key Performance Indicator to be of any value there must be a way to accurately define and measure it. This is so because a KPI may meet the criteria of reflecting the organisational goal, which may for instance pertain to being the most popular company. However, since a company's popularity can not be measured or compared to others, KPI cannot be defined this way.

Considerations concerning how a Key Performance Indicator is to be measured should also be established in advance. The definitions of how the indicator is to be calculated can be different for organisation. It is defined by the organisation - it could be the measurement in terms of profits that they like to earn or it could a measure of the units that they sell (if it's a product) or could be the customers that they service (if it is a service). Moreover, it is crucial that the organisation then sticks to these definitions from year to year in order to permit for annual comparisons.

Key performance indicators may also be used for all types and in all areas of project management: IT (information technology), construction, engineering, risk management, supply chain, safety, quality, manufacturing, financial management, sales and so on.

After the Key Performance Indicator has been defined and a way to gauge it has also been determined, a clear target has to be set which should be explicable to everyone. The target should also be exact so that every individual can take actions towards accomplishing it.

It is pointless to say that to achieve a particular target point of Key Performance Indicator for a company; every department has to work in synergy towards it. For this reason, all the units of an organisation need to define their respective KPIs which  should in turn work towards accomplishing the overall KPIs of the organisation.

It is significant that after Key Performance Indicators and their relative components have been identified, they should be used as a performance management tool. Best means to represent variance (from the target levels) should be defined, ultimately making sure that everyone in the organisation is focused towards meeting target levels of the Key Performance Indicators.