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Every day, several new companies are starting up. Existing businesses are expanding every month, and the business world is growing steadily. Technology has played a massive part in this development. Every day, there are innovations to help ease normal business functions such as inputting data, sending sales emails, etc. There are also new techniques to help companies measure their progress towards reaching their objectives.
One such technique is Key Performance Indicators ( KPI s). A KPI is a value measured according to particular methods, that shows how well a company has performed in reaching its desired goals or objectives. There are several dozens of KPI s, and they can be used to measure almost any performance within an organization. They can be used to measure sales, revenue increases or loss, customer satisfaction, employee turnover, penetration of advertisements in the targeted market, etc.
An organization does not have to be restricted to one KPI . They can use several at one time and still be efficient. However, implementing KPI s can seem complicated at first. That's why we've decided to list the process of KPI implementation in four easy stages. Let's check them out.
What do you want to measure? That's the first question you need to ask yourself before investing in anything. There are several types of KPI s, but you need to identify the specific areas that need measuring directly. You might measure things like increase in revenue, expansion of product lines, increase in product quality, boost in customer satisfaction rate. These are clear objectives. They are goals, but you have to name or set them up in a way that it cannot be ambiguous to anyone who may be part of the process of making that goal a reality. Misunderstood objectives can create disasters.
After creating the objective, you need to create a clear target for that objective. You can't just say "increase revenue," you have to give a clear point that marks success. And with that target, there has to be a timeframe given for more intentional measurement. "Increase revenue by 15% in the next fiscal year" is a much better target.
You should then compare your performance now to your target performance and create sub-objectives. Sub-objectives are objectives designed to reach your bigger target. An example is "to increase revenue by 15% by 2021; we will need to increase revenue by so-so each month." You have to set goals and time frames, but they can be anything or any amount of time. However, as a beginner to working with KPI , it's best to set up incredibly realistic goals and plan for the long term.
While setting up these goals, you need to decide if your objectives are measurable or not and plan accordingly for the next stage.
Your chosen KPIs should be according to your set objectives. There are dozens of KPIs: conversion rates, daily/monthly sales, site traffic, price trends, shopping cart abandonment rate, social shares, traffic sources, etc. Ideally, a good KPI should be used for multiple objectives and areas. Once you've specified your areas of improvement or concentration, a KPI can be chosen in alignment with those goals.
Choosing just one metric or just a few metrics can really help you easily track your progress. Following too many KPIs will probably pull your resources too tight. One KPI can efficiently work for objectives in different areas, which is excellent for both small and large enterprises. But measuring lots of KPIs will simply stress out those doing the research and tabulating the figures, thereby reducing productivity. You'll be better off not tracking any KPIs at all.
In finding KPIs to track, make sure that your KPI is SMART. That is, your KPI should have the following factors.
S – Specific. Your KPI should be specific towards achieving your goal.
M – Measurable. A KPI has to be measurable for it to be of any value to your company. It also has to be trackable for you to follow its progression easily.
A – Attainable. While your KPI should be measurable, it shouldn't be challenging to achieve. The data for a KPI should be easily attainable for those compiling the data and arranging it. The objective should also be achievable within the period allotted.
R – Relevant. Each KPI you choose should, of course, be relevant to all your goals and objectives.
T – Timeframe. You should choose a specific date by which you expect to have reached your goals. You should also set up a timeline or intervals during which you'd be using the KPI to measure your progress.
If you'd like to go one step further, you can make choosing a KPI even SMARTER.
The E stands for Explainable. This means that your KPI and all methods for measuring it and the timeframe given for it has to be understandable. It cannot be ambiguous to anyone reading it. When the results are collated and presented, they must be easily comprehensible as well.
R stands for Relative. Business is as flexible as the people participating in it. It can be fluid, and as such, your KPI needs to be able to adjust to shifting goals while still having meaning.
After you've decided on your objectives, you need to collect data. Collecting data is absolutely essential in KPI implementation. You will need to collect data concerning your target from years before, and you need to decide on which method you'll use to collect new data as you proceed towards achieving your goal. Only by collecting data, will you be able to measure your company's progress towards your goal. It helps to ascertain if you're on track or not.
There are many methods of data collection when implementing KPIs , but the most important factor in deciding which is best for you is based on your objective itself. Your target can be quantitative if you're dealing with a goal that can be counted. "Increase revenue by 15%" is a quantifiable, measurable objective, and the data on it should, therefore, be collected by quantitative data collection methods such as questionnaires, surveys and documents, and records.
Qualitative data collection methods are used for objectives that cannot be measured with numbers. These goals usually focus on the more human side of the organization. A qualitative goal is to "Increase customer satisfaction." This goal focuses on emotion and perspective, which cannot be quantified. Qualitative data collection methods like interviews focus groups, and observations could be appropriate. However, they could also be inappropriate.
Due to some special conditions, such as the size of the research subject or the capabilities of the audience, you might use quantitative data collection methods for qualitative data and vice versa. There are always factors that are specific to the organization that may affect data collection methods.
However, the first steps of data collection will almost certainly involve rigorous legwork, manual labor, and written reports. You need to make sure to appoint someone that can handle this pressure because this stage is very crucial. A mistake in the data collection can mean several errors in the data analysis and reporting, which can cause problems in evaluating your KPIs .
After a specified period has passed, it's time to gather and analyze the data. Data collection has already been taken care of in the previous stage. The next step involves the arrangement of the data. The data should ideally be inputted in a spreadsheet like Google Sheets, for example . In that form, it's easier to analyze through text analysis (picture).
But if it isn't, there are other ways of extracting information from data.
But analyzing the data is only one stage. To be able to present the data accurately, you have to interpret it. Analyzed data may not make much sense to the layman who is not well versed in the terms that may be used in describing data. Describing data gotten for Key Performance Indicator in clear terms is extremely important for the company's growth. This is because observations or knowledge acquired in the process of achieving that goal may be used in other areas of the company. You don't have to use only words when interpreting data. You can use different tools. One such tool is a spreadsheet so that you can display what you observed in visible figures.
For other types of data, you can use charts or graphs to illustrate your point.
It might be worthwhile to spend the extra time to create these charts and illustrations. Facts and ideas make more of an impact when shown in pictures than texts. The difference between the start and end of the period set for your KPI will be more impactful when displayed in a graph or a chart or any other infographic. Or you can just create a KPI dashboard .
Setting up key performance indicators is excellent and all, but it doesn't really amount to anything if no one knows how to set up important information gained from it. Nobody really wants to read super long texts, especially when there's a need to make a decision and make it fast. There has to be a way to display all the most critical information in a way that can be understood by anybody — a complete layman's version of all the data collected and analyzed throughout the whole KPI period.
That's what a KPI dashboard is. It displays information in its simplest and most comprehensive form to be viewed by executives in the process of decision making. KPIs can be reviewed as many times as the company is able. A company can set up KPIs for everyday work and some for big projects and achievements. Any of these KPIs can be used to create a KPI dashboard. There can be a KPI dashboard for everyday changes in the company, and there can be KPI dashboards for massive projects. Each is important for decision making but has a few differences.
KPI dashboards that collect information from everyday processes are needed for operational decisions. That is, these KPIs are used to make daily decisions in the company. It's based on these reports that the executives make needed changes in operation.
Project KPIs , on the other hand, have a different purpose. These KPIs are built for the long term. They are only brought into play as a result of long study and observation. These dashboards are from KPIs that are geared towards achieving specific objectives in the distant future. They're created to identify any kind of challenge that may hinder any long term objective and goal. Each type of dashboard is critical in every business.
Executive Summary Dashboard is different from a normal KPI dashboard. It's made specifically to inform the executives of a company and allow them to make decisions. It provides all the data needed on various KPIs and metrics in a visual and easy to understand form. A good executive dashboard will only require an executive to take a short look at the board to learn all he/she needs to know about certain KPIs and situations within the company.
This is an essential tool for executives, especially the CEO. When having meetings and making plans, there may not be enough time for the executives to dive into the details of the process and arrive at the answers themselves. They need a quicker but still efficient method, and the executive summary dashboard is it. If any point or KPI needs details for a better understanding, the details can then be provided.
Executive summary dashboard s can be on any KPI in any department. Or in any situation that requires the attention of the executives. Here's an example of a classic dashboard.
The process of making an executive dashboard isn't too different from the process of making a KPI dashboard. The only distinction is that you know who your audience is, which makes it a lot easier to create.
Each process in implementing KPI is vital in smoothly assimilating this system of measurements in your system. And in the spirit of summarizing texts, here's a summary of what we've covered:
Integrating KPIs into your business will take time, but that's completely normal, especially if you have a larger business.
Q1: Why is KPI so important?
KPIs are crucial in today's business world because it's so important to have a tool to measure progress with. Each project needs to have a certain timeframe, method of calculating its progress and way of visualizing the information gained during that process. KPIs provide all of that, which is why it's becoming a necessity in today's business world.
Q2: What's the difference between KPI and business metrics?
KPIs follow up objectives and goals until they are achieved. KPIs need timeframe and specific goals. They also need tracking methods that are relevant to the objectives outlined. Metrics only follow processes, and they do not need specific objectives or a timeframe.