Simply stated, key performance indicators (KPIs) are measures of accomplishment, tools used by organizations to track their progress and success in achieving the purpose of the organization. They consist of a set of predetermined measurable objectives for an organization and can involve any aspect of an organization that is considered vital to its success. In order to create effective KPIs, an organization must have a mission with clearly defined goals and objectives. Vague goals, such as to be the best in the industry, for example, won’t work because they are too broad. The goals must be expressed in measurable terms and agreed upon by those involved with the organization.
Key performance indicators can be presented in any combination of reports, spreadsheets, or charts. They provide a visual real-time snapshot of the strength of a business or organization based on the specific predefined measures. The method in which they are displayed varies, as it depends greatly on the objective being measured and its target audience.
These measures vary from organization to organization, depending on the type of business and its objectives, and they can be either financial or non-financial. For example, a trucking company may use the comparison of the number of truck accidents involving their drivers that occurred per distance traveled to the national average. This would be a way of tracking their safety record. An emergency healthcare facility may use the average wait time for patients to be treated per time of day, which would allow them to determine if adjustments to staffing levels or training are desirable.
Along the same lines, a company dealing in sales may use the percentage of new customers that were referred to them by existing customers as a key performance indicator. The same sales company could also use a percentage comparison of the current year’s profit to the previous year’s profits with a target of a specified percentage each year.
Once a key performance indicator is defined, it is rarely changed unless the actual goals of the organization change. In fact, to be useful, it is very important for these goals to consistently maintain the same definition from year to year so that the progress of the organization can be monitored effectively. In this way, business practices and/or strategic planning can be reexamined if there is a decrease in progress towards defined goals.