What are Key Performance Indicators (KPIs)?
Key performance indicators (KPIs) are objective metrics that organizations track over time to determine whether they are achieving their strategic objectives. KPIs measure how well an individual or a team is performing in terms of meeting their goals. Reviewing and evaluating KPIs can then help organizations determine if they are on track to hit their desired objectives. KPIs can even help organizations identify if strategies are working, helping them to develop strategies to improve performance over time. KPIs are then a valuable tool that can help provide your board targets to attain, milestones to gauge progress, and insights that can help you make better strategic decisions.
Types of KPIs
KPIs come in different forms that each serve a different purpose, with the ultimate goal of helping you meet your objectives. While some KPIs are used to measure monthly progress, others have a more long-term focus. The most common types of KPIs organizations use include:
- Strategic: Strategic KPIs are usually the most high-level, and they provide a big picture of how an organization is doing in relation to its overall goals. Board members usually look at strategic KPIs to get a better idea of how their organization is doing as a whole at that time. Examples of strategic KPIs include return on investment (ROI) and total company revenue.
- Operational: Operational KPIs focus on much tighter time frames. These KPIs are generally used to measure how a company is doing month over month (or even day over day) by analyzing different processes and segments. These KPIs focus on organization processes and efficiencies, and they may be used to determine which strategies are failing if goals are not being met.
- Functional: Functional KPIs are often tied to specific functions such as accounting or IT. While IT might use KPIs to track time to resolution or average uptime, finance KPIs might be used to track profit margin or return on assets. While these KPIs may be strategic or operational, they provide the greatest value to a specific set of users.
- Leading/Lagging: Leading/lagging KPIs describe the nature of the data being analyzed and whether it is signaling something to come vs. something that has already occurred. While leading KPIs can help predict outcomes, lagging KPIs track what has already happened. Organizations often need to use a combination of leading and lagging KPIs to ensure they are properly tracking metrics and outcomes.
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