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Business KPIs – What's The Key, The Performance and The Indicator?

By Telmo Silva on December 26, 2018

KPI definition for business“Key Performance Indicator” its self.

KPI Literal Definition

Key

Something that is vital or an important aspect. Everything you may want to measure cannot be considered Key. You need to start with 3 to 5 per department or role. Examples could be:

  • Sales Revenue
  • Cash Burned
  • Billable Hours

Performance

The action or process of carrying out or accomplishing an action, task, or function. To measure performance, you need to have what is considered a success for each Key item. Examples could be:

  • Assigned revenue goal attainment
  • Cash Burn rate vs. Business Plan
  • Billable Hours vs. Available Manhours

Indicator

A trend or fact, that indicates the state or level of something. An indicator would be an assigned number, percentage or rating. Examples could be:

  • Percentage obtained
  • Net Cash Flow
  • The percent of Manhours billed

Based on the what was just reviewed, the following is the correct answers to the question, “Please define the term KPI.” KPIs are the critical (key) indicators of the performance toward an intended result or goal. KPIs provide a focal point for deliberate and operational improvement, establish an analytical basis for a decision support system, creating actionable insights and help focus attention on what matters most.

What’s Your KPI?

So, now that we have established the definition for KPIs, you need to understand how to create the right KPIs for your company or department. You need to start with what are the things that make your company or department tremendous or unique. You must be able to examine your success and understand your failures critically. Look for things like:

  • What do successful reps repeat in order to overachieve consistently?
  • Why do hard working reps fail to meet their sales quota?
  • What is your trailing weekly, monthly and quarterly cash balance?
  • What impacts your cash balance above and below the trailing average?
  • What projects or cases contribute the most billable hours?
  • What activities are occurring that are going unbilled?

“What get measured gets done”

Once you create your KPIs, you will need to work towards implementing them and putting the KPIs to work. The core categories for successfully deploying new KPIs are: Gain buy-in from those that will be the focus of the KPIs. This could include Sales People, Attorneys, Accounts, etc. It is important that these people understand that measuring KPIs are not a form of micro-management, it’s an indicator system to repeat success and change course before a failure.

Be transparent with your KPI measurements. People must be confident that KPIs which involve their performance will be shared with them and other relevant team members in an extremely regular fashion. This transparency includes not only employees, but it must also include partners and vendors. You must commit to revisit and reset.

Being upfront with your team when and how you will be reviewing the merit of the KPI and the components making up that KPI. Be sure that compensation plans do not conflict with driving positive KPI results. Be sure that your KPIs are relevant to your company’s direction.

Measuring for measurement sake without consideration of your business plan will only discredit the merit of your newly formed KIPs. Keep in mind that KPIs are best when kept simple and easily understood. Be sure you can deliver an “elevator pitch” for each of your KPIs, to anyone, anytime.

You want your KPIs to allow for the most efficient way to stay on course. As Peter Drucker coined, “What gets measured gets done.”

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