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Evaluating KPI's: Featured Article
Key performance indicators (KPIs) are financial metrics and non-financial metrics that are used to help a business define and measure its progress toward its goals. KPIs are used in business methodologies to assess the current state of the business and to determine a course of action for any business related problems.
Monitoring KPIs is known as "business activity monitoring." Business Activity Monitoring is used to provide real-time information about the current status and results of processes, operations and other transactions. Business Activity Monitoring helps to make a business make better decisions, quickly address problems, and re-position them to take advantage of upcoming opportunities.
KPIs are commonly used to add value to difficult to measure activities such as leadership development, service, and customer satisfaction. KPIs will vary depending upon the organization you are in. The strategy of your organization must be assessed as well to determine the proper KPI. A good business can easily identify, track, define, and act up their KPIs to help them toward their goals.
A KPI must be part of a measurable objective. For example, a KPI could be "Increasing the average revenue per customer from $100 to $200 by 2010." The KPI in this scenario would be `Average Revenue Per Customer'.
KPIs are sometimes confused with critical success factors (CSF). A KPI is something that quantifies management objectives and enables for the measurement of strategic performances. A CSF is something that is critical in order for the business to achieve its specified goal or level of performance. An example of a CSF is installation of a call centre for providing questions whereas a KPI would be the number of new clients you have at the call center.
The KPIs will be different for every organization. For example, a university would use the failure rate of its students as a KPI so it will help them understand their position in the educational community. Businesses tend to sway toward financial KPI such as the percentage of income they receive from returning customers.
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There are 4 key environments necessary to identify your KPIs:
1. Having a pre-defined business process or business plan
2. Having well-established goals and performance requirements for your business processes.
3. Having a quantitative or qualitative measurement of the results and a comparison of them to your set goals.
4. Tweak any variances in existing processes or resources that have short-term goals.
Helpful Resources: Evaluating KIPs This article focuses on evaluating KPIs at a company for driving contractor behavior. This site discusses steps they used to break down the KPI and determine if it was hitting the goals of the company. Wikipedia: Key Performance Indicators KPIs Tuppas 3 Solutions How KIPs are Used KIP Direct |
The KPIs you select must reflect the goals of the company. Many companies believe in following the acronym "SMART: when they are identifying and applying KPIs:
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- S - Specific
- - M - Measurable
- - A - Achievable
- - R - Result-oriented or Relevant
- - T - Time based
In order for KPIs to be useful, they must be consistent and have an established correlation to the area of the business with the greatest need for improvement. Your KPIs should never provide you with false readings and should be quantifiable.
You can distinguish a good KPI because it provides you with direction. A directional KPI can give you insight to a specific area of your business and track the performance of this specific area. The KPI will inform you if the business is growing and improving. A quantifiable KPI is represented as a number and will provide you with a better analysis of your data. Some companies use KPIs with a rating system such as: Poor, Fair, Good, and Excellent. This rating system can easily be translated to a numerical methodology.
Another good KPI should include your customer related numbers such as: new customers, satisfied customers, or customer turnover. KPIs can also be used to track your bad debts. The bad debt KPI will show you exactly where you are losing money.
If you need the results from your KPI quickly, you should identify a daily or weekly KPI. The faster you have the results from your KPIs, the faster you can implement proper changes. Having a large delay with your KPI can slow down your business process and cause a large headache for your overall business process.
KPIs can be broken down into several sub-categories:
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- Actionable indicators - These are great for helping a company control the effect of change.
- - Directional indicators - These specific if you business is growing or getting worse.
- - Practical indicators - What is interfering with your existing company process?
- - Quantitative indicators - These can be presented as a number.
The reason for using KPIs it to find what your company truly values. The KPIs target what is of value to your company and helps you determine what you need in order to function. KPIs commonly use strategy maps to measure the results of the KPIs. The strategy maps allow you to understand the KPI process and can help you implement proper procedures from management.
KPIs should be looked at as a long-term change to your company. Often, KPIs do not change and they need to be consistent from project to project. KPIs should be measurable, dependable, observable, reliable, and specific.
Some companies avoid using KPIs because they have heard that it is too expensive to implement or it is difficult to measure. Depending upon the software and the analyst who uses it, you may avoid any type of high cost associated with the software and your analyst should know what is being measured instead of having to guess.
KPIs have also received a bad reputation because it is difficult to change the KPIs as your yearly comparisons with previous years and you may loose the information from the previous years. It may be difficult to get comparisons with other KPIs from different companies if you are implementing your KPI practice in house.
Overall, KPIs will offer your company with an excellent opportunity to target specific areas where growth is desired. Lending institutions and banks use KPI data and make it available to their borrowers to help them maximize their profits.
KPIs are commonly used in the marketing industry to analyze customer related numbers such as: new customers, existing customers, and customer attrition. Marketing teams also assess turnover ratios, outstanding balances, bad debts, potential customer demographics, and profitability of customers based on their KPIs.
Here are some KPI software programs that can help you get started:
Tuppas KPI Software for Manufacturing - Tuppas KPI software includes some of the basic KPIs like: scheduling, equipment effectiveness, forecasting, material usage and costs, cycle time, job cost, product cost, inventory, on-time shipping and ordering. Tuppas takes the basic KPIs and increases them to a higher level KPI such as: analytics, demand forecasting, production efficiency, supplier trends, and comparative analytics.
The Tuppas KPI software provides businesses with clear advantages regarding KPI comparisons on various products, plants, divisions, and other firms within your own corporation. The KPI software will help your company member see where the money is going, where the money is, and what items are not profitable. This will allow you to standardize procedures within the organization to improve sales. Data from multiple sources can easily be integrated into the KPI software, allowing you to view all your information on one spreadsheet.
KPI software can help support decisions on improving production performance and strategy planning. If you select real-time KPIs, you can make a decision on the spot that is based on relative data. The Tuppas KPI software will eliminate the need for an special IT infrastructure and will provide your company with numerous cost-saving benefits.
Another good KPI software program is sold by A 3 Solutions Incorporated. The A3 KPI software will determine your predefined measures to move your business into global or regional sales figures, personnel stats and trends, and real-time supply-chain information. The A 3 KPI software provides you with reports, spreadsheets, charts, and other useful tools to help you indicate your KPIs. A 3 will also help you with financial performance procedures that can optimize and increase the productivity and efficiency of your company. They will also help you find ways to increase your customer pool and evaluate other companies you do business with. The A 3 KPI software has 4 specialized features to help your company grow, they include:
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- Management reporting and analysis
- - Executive dashboards
- - Corporate budgeting and forecasting
- - Multi-currency consolidation
After you have purchased the KPI software and you have good KPIs defined, it is time to utilize them. What this means is, you want to use the KPIs as not only a performance management tool but as a carrot. The KPIs allow everyone within your organization to obtain a clear picture of what it important and they can quickly identify what they need to do in order to make the KPIs successful. This will help you manage the overall performance of the KPI and use your employees as the carrot. In order for your employees to become actively involved in the KPIs, you need to post them in areas where they will be seen. Break rooms, lunch rooms, and conference rooms are all great places to post the KPIs to make sure everyone sees them.
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