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A performance indicator or key performance indicator (KPI) is a type of
performance measurementPerformance measurement is the process of collecting, analyzing and/or reporting information regarding the performance A performance is an act of staging or presenting a play, concert, or other form of entertainment. It is also defined as the actio ...
. KPIs evaluate the success of an organization or of a particular activity (such as projects, programs, products and other initiatives) in which it engages. Often success is simply the repeated, periodic achievement of some levels of operational goal (e.g. zero defects, 10/10 customer satisfaction), and sometimes success is defined in terms of making progress toward strategic goals. Accordingly, choosing the right KPIs relies upon a good understanding of what is important to the organization. What is deemed important often depends on the department measuring the performance – e.g. the KPIs useful to finance will differ from the KPIs assigned to sales. Since there is a need to understand well what is important, various techniques to assess the present state of the business, and its key activities, are associated with the selection of performance indicators. These assessments often lead to the identification of potential improvements, so performance indicators are routinely associated with 'performance improvement' initiatives. A very common way to choose KPIs is to apply a management framework such as the
balanced scorecard A balanced scorecard is a strategy performance management Performance management (PM) is the process of ensuring that a set of activities and outputs meets an organization's goal A goal is an idea of the future or desired result that a p ...

balanced scorecard
. The importance of such performance indicators is evident in the typical decision-making process (e.g. in management of organisations). When a decision-maker considers several options, they must be equipped to properly analyse the status quo to predict the consequences of future actions. Should they make their analysis on the basis of faulty or incomplete information, the predictions will not be reliable and consequently the decision made might yield an unexpected result. Therefore, the proper usage of performance indicators is vital to avoid such mistakes and minimise the risk.


Categorization of indicators

Key performance indicators define a set of values against which to measure. These raw sets of values, which can be fed to systems that aggregate the data, are called ''indicators''. There are two categories of measurements for KPIs. * '' Quantitative'' facts presented with a specific objective numeric value measured against a standard. Usually they are not subject to distortion, personal feelings, prejudices, or interpretations. * '' Qualitative'' represents non-numeric conformance to a standard, or interpretation of personal feelings, tastes, opinions or experiences. An 'indicator' can only measure what 'has' happened, in the past tense, so the only type of measurement is descriptive or lagging. Any KPI that attempts to measure something in a future state as predictive, diagnostic or prescriptive is no longer an 'indicator', it is a 'prognosticator' - at this point, it is analytics (possibly based on a KPI) but leading KPIs are also used to indicate the amount of front end loading activities.


Points of measurement

''Performance'' focuses on measuring a particular ''element'' of an ''activity''. An activity can have four elements: input, output, control, and mechanism. At a minimum, activity is required to have at least an input and an output. Something goes into the activity as an ''input''; the activity transforms the input by changing its ''state'', and the activity produces an ''output''. An activity can also enable ''mechanisms'' that are typically separated into ''human'' and ''system'' mechanisms. It can also be constrained in some way by a ''control''. Lastly, its actions can have a temporal construct of ''time''. * ''Input'' indicates the inputs required of an activity to produce an output. * ''Output'' captures the outcome or results of an activity or group of activities. * ''Activity'' indicates the transformation produced by an activity (i.e., some form of work). * ''Mechanism'' enables an activity to work (a performer), either human or system. * ''Control'' is an object that controls the activity's production through compliance. * ''Time'' indicates a temporal element of the activity.


Identifying indicators of organization

Performance indicators differ from business drivers and aims (or goals). A school might consider the failure rate of its students as a key performance indicator which might help the school understand its position in the educational community, whereas a business might consider the percentage of income from returning customers as a potential KPI. The key stages in identifying KPIs are: * Having a pre-defined business process (BP). * Having requirements for the BPs. * Having a quantitative/qualitative measurement of the results and comparison with set goals. * Investigating variances and tweaking processes or resources to achieve short-term goals. Key performance indicators (KPIs) are ways to periodically assess the performances of organizations, business units, and their division, departments and employees. Accordingly, KPIs are most commonly defined in a way that is understandable, meaningful, and measurable. They are rarely defined in such a way that their fulfillment would be hampered by factors seen as non-controllable by the organizations or individuals responsible. Such KPIs are usually ignored by organizations. KPIs should follow the
SMART criteria S.M.A.R.T. is a mnemonic acronym, giving criteria to guide in the Goal setting, setting of goals and objectives, for example in project management, employee-performance management and personal development. The letters S and M generally mean specifi ...

SMART criteria
. This means the measure has a Specific purpose for the business, it is Measurable to really get a value of the KPI, the defined norms have to be Achievable, the improvement of a KPI has to be Relevant to the success of the organization, and finally it must be Time phased, which means the value or outcomes are shown for a predefined and relevant period.Key Performance Indicators: Establishing the Metrics that Guide Success
accessed 23 April 2016
In order to be evaluated, KPIs are linked to target values, so that the value of the measure can be assessed as meeting expectations or not.


Examples

Key performance indicators are the non-financial measures of a company's performance - they do not have a monetary value but they do contribute to the company's profitability.


Accounts

Some examples are: # Percentage of overdue invoices # Percentage of purchase orders raised in advance # Number of retrospectively raised purchase orders # Finance report error rate (measures the quality of the report) # Average cycle time of workflow # Number of duplicate payments


Marketing and sales

# New
customer In sales Sales are activities related to selling or the number of goods sold in a given targeted time period. The delivery of a service for a cost is also considered a sale. The seller, or the provider of the goods or services, complet ...

customer
acquisition # Demographic analysis of individuals (potential customers) applying to become customers, and the levels of approval, rejections, and pending numbers # Status of existing customers #
Customer attrition Customer attrition, also known as customer churn, customer turnover, or customer defection, is the loss of clients or customers. Banks, telephone service companies, Internet service providers, pay TV companies, insurance firms, and alarm monitoring ...
# Turnover (i.e., revenue) generated by segments of the customer population # Outstanding balances held by segments of customers and terms of payment # Collection of bad debts within customer relationships # Profitability of customers by demographic segments and segmentation of customers by profitability Many of these customer KPIs are developed and managed with
customer relationship management Customer relationship management (CRM) is a process in which a business or other organization administers its interactions with customers, typically using data analysis to study large amounts of information. CRM systems compile data from a range ...
software. Faster availability of data is a competitive issue for most organizations. For example, businesses that have higher operational/credit risk (involving for example credit cards or wealth management) may want weekly or even daily availability of KPI analysis, facilitated by appropriate IT systems and tools.


Manufacturing

Overall equipment effectiveness Overall equipment effectiveness (OEE) is a measure of how well a manufacturing Manufacturing is the Production (economics), production of goods through the use of Work (human activity), labor, machines, tools, and chemical or biological processin ...
is a set of broadly accepted nonfinancial metrics that reflect manufacturing success. * OEE = availability x performance x quality * Availability = run time / total time, by definition this is the percentage of the actual amount of production time the machine is running to the production time the machine is available. * Down time = time the building/ location/ service/ machine is out of operation due to any reason (including planned down time such as maintenance or 'out of season'). * Performance = total count / target counter, by definition this is the percentage of total parts produced on the machine to the production rate of machine. * Quality = good count / total count, by definition, this is the percentage of good parts out of the total parts produced on the machine. * Cycle time ratio (CTR) = standard cycle time / real cycle time *
Capacity utilization Capacity utilization or capacity utilisation is the extent to which a firm or nation employs its installed productive capacityProductive capacity is the maximum possible output Output may refer to: * The information produced by a computer, see Inp ...
*
Rejection rate Rejection, or the verb reject, may refer to: * Social rejection, in psychology, an interpersonal situation that occurs when a person or group of people exclude an individual from a social relationship * Transplant rejection, in medicine, the immune ...


Professional Services

Most
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firms (for example, management consultancies, systems integration firms, or digital marketing agencies) use three key performance indicators to track the health of their businesses. They typically use
professional services automationProfessional services automation (PSA) is software designed to assist professionals, such as lawyers, auditors, and IT consultants, with project management Project management is the process of leading the work of a team to achieve goals and meet s ...
(PSA) software to keep track of and manage these metrics. *
Utilization rate In business, the utilization rate is an important number for firms that charge their time to clients and for those that need to maximize the productive time of their employees. It can reflect the billing efficiency or the overall productive use of ...
= the percentage of time employees spend generating revenue * Project profitability = the difference between the revenue generated by a project and the cost of delivering the work * Project success rate = the percentage of projects delivered on time and under budget


System operations

*
Availability In reliability engineering Reliability engineering is a sub-discipline of systems engineering that emphasizes the ability of equipment to function without failure. Reliability describes the ability of a system or component to function under st ...
/
uptime Uptime is a measure of system reliability, expressed as the percentage of time Time is the continued sequence of existence and event (philosophy), events that occurs in an apparently irreversible process, irreversible succession from the pas ...
*
Mean time between failure Mean time between failures (MTBF) is the predicted elapsed time between inherent failure The 1895 alt= Failure is the state or condition of not meeting a desirable or intended objective (goal), objective, and may be viewed as the opposite of S ...
*
Mean time to repair Mean time to repair (MTTR) is a basic measure of the maintainability of repairable A repairable component is a component of a finished good that can be designated for repair. Repairable components tend to be more expensive than non-repairable ...
* Unplanned availability * Unplanned downtime * Average time to repair


Project execution

*
Earned value Earned value management (EVM), earned value project management, or earned value performance management (EVPM) is a project management technique for measuring project performance and progress in an objective manner. Overview Earned value managem ...
* Cost variance * Schedule variance * Estimate to complete * Manpower spent / month * Money spent / month * Planned spend / month * Planned manpower / month * Average time to delivery * Tasks / staff * Project overhead / ROI * Planned delivery date vs actual delivery date


Supply chain management

Businesses can utilize KPIs to establish and monitor progress toward a variety of goals, including lean manufacturing objectives, minority business enterprise and diversity spending, environmental "green" initiatives, cost avoidance programs and
low-cost country sourcing Low-cost country sourcing (LCCS) is procurement Procurement is the process of finding and agreeing to terms, and acquiring goods, services, or works from an external source, often via a tendering or competitive bidding process. Procurement gen ...
targets. Any business, regardless of size, can better manage supplier performance with the help of KPIs robust capabilities, which include: * Automated entry and approval functions * On-demand, real-time scorecard measures * Rework on procured inventory * Single data repository to eliminate inefficiencies and maintain consistency * Advanced workflow approval process to ensure consistent procedures * Flexible data-input modes and real-time graphical performance displays * Customized cost savings documentation * Simplified setup procedures to eliminate dependence upon IT resources Main SCM KPIs will detail the following processes: * Sales forecasts * Inventory * Procurement and suppliers * Warehousing * Transportation *
Reverse logistics Reverse or reversing may refer to: Arts and media * ''Reverse'' (Eldritch album), 2001 * ''Reverse'' (2009 film), a Polish comedy-drama film * ''Reverse'' (2019 film), an Iranian crime-drama film * ''Reverse'' (Morandi album), 2005 * ''Reverse'' ...
Suppliers can implement KPIs to gain an advantage over the competition. Suppliers have instant access to a user-friendly portal for submitting standardized cost savings templates. Suppliers and their customers exchange vital supply chain performance data while gaining visibility to the exact status of cost improvement projects and cost savings documentation.


Government

The provincial government of
Ontario, Canada ("Loyal she began, loyal she remains") , Label_map = yes , image_map = Ontario in Canada 2.svg , map_alt = Map showing Ontario's location east/central of Canada. , coordinates = , cap ...

Ontario, Canada
has been using KPIs since 1998 to measure the performance of higher education institutions in the province. All post-secondary schools collect and report performance data in five areas – graduate satisfaction, student satisfaction, employer satisfaction, employment rate, and graduation rate.


Further performance indicators

* Duration of a
stockout A stockout, or out-of-stock (OOS) event is an event that causes inventory Inventory (American English American English (AmE, AE, AmEng, USEng, en-US), sometimes called United States English or U.S. English, is the set of varieties of th ...
situation : \text = \frac\times100 * Customer order waiting time Human Resource Management * Employee turnover * Ability to recruit to advertised roles * Employee performance indicators * Staff satisfaction/ results of staff surveys * Proportion of staff unplanned absence (due to short or long term sickness) * Cross-functional team analysis * Organization contribution to Sector performance improvement Ex: Research Institutes contribution to Commercial Agriculture Improvement


Problems

In practice, overseeing key performance indicators can prove expensive or difficult for organizations. Some indicators such as staff morale may be impossible to quantify. As such, dubious KPIs can be adopted that can be used as a rough guide rather than a precise benchmark. Key performance indicators can also lead to
perverse incentive A perverse incentive is an incentive that has an unintended and undesirable result that is contrary to the intentions of its designers. The cobra effect is the most direct kind of perverse incentive, typically because the incentive unintentionally r ...
s and
unintended consequences In the social sciences Social science is the Branches of science, branch of science devoted to the study of society, societies and the Social relation, relationships among individuals within those societies. The term was formerly used to ...

unintended consequences
as a result of employees working to the specific measurements at the expense of the actual quality or value of their work. Sometimes, collecting statistics can become a substitute for a better understanding of the problems, so the use of dubious KPIs can result in progress in aims and measured effectiveness becoming different. For example, during the Vietnam War, US soldiers were shown to be effective in kill ratios and high body counts, but this was misleading when used to measure aims as it did not show the lack of progress towards the US goal of increasing South Vietnamese government control of its territory. Another example would be to measure the productivity of a software development team in terms of lines of source code written. This approach can easily add large amounts of dubious code, thereby inflating the line count but adding little value in terms of systemic improvement. A similar problem arises when a footballer kicks a ball uselessly to build up his statistics.


See also

*
Business intelligence Business intelligence (BI) comprises the strategies and technologies used by enterprises for the data analysis Data analysis is a process of inspecting, cleansing, transforming, and modelling In general, a model is an informative representat ...
*
Business performance management Business performance management (also known as "corporate performance management" (CPM) and "enterprise performance management") is a set of performance management Performance management (PM) is the process of ensuring that a set of activitie ...
* Community indicators * Dashboarding *
Data presentation architecture Data visualization (often abbreviated ''data viz'') is an interdisciplinary field that deals with the graphic Graphics (from Greek ''graphikos'', "belonging to drawing") are visual images or designs on some surface, such as a wall, canvas, ...
*
Figure of merit A figure of merit is a quantity used to characterize the performance of a device, system or method, relative to its alternatives. Examples *Clock rate In computing Computing is any goal-oriented activity requiring, benefiting from, or creat ...
*
Gap analysis In management Management (or managing) is the administration of an organization An organization, or organisation (Commonwealth English The use of the English language English is a West Germanic languages, West Germanic ...
*
ITIL The Information Technology Infrastructure Library (ITIL) is a set of detailed practices for IT activities such as IT service management Information technology service management (ITSM) are the activities that are performed by an organization ...
*
Key risk indicator A key risk indicator (KRI) is a measure used in management to indicate how risky an activity is. Key risk indicators are metrics used by organizations to provide an early signal of increasing risk exposures in various areas of the enterprise. It d ...
*
Network performance Network performance refers to measures of service qualityService quality (SQ), in its contemporary conceptualisation, is a comparison of perceived expectations (E) of a service with perceived performance (P), giving rise to the equation SQ=P-E. Th ...
* *
Overall equipment effectiveness Overall equipment effectiveness (OEE) is a measure of how well a manufacturing Manufacturing is the Production (economics), production of goods through the use of Work (human activity), labor, machines, tools, and chemical or biological processin ...
*
Strategy Markup Language Strategy Markup Language (StratML) is an XML Extensible Markup Language (XML) is a markup language #REDIRECT Markup language In computer text processing, a markup language is a system for annotation, annotating a document in a way that is Sy ...
* SRM


References


Further reading

* David Parmenter, ''Key Performance Indicators - Developing, Implementing, and Using Winning KPIs. (4th Edition)''. John Wiley & Sons 2020, . * Bernard Marr, ''Key Performance Indicators: The 75+ Measures Every Manager Needs to Know''. Financial Times/ Prentice Hall 2012, . * Abeysiriwardana P.C., Jayasinghe-Mudalige U., ''Role of Peripheral Analysis Methods in Adoption of Successful KPIs for a Research Institute Working Towards Commercial Agriculture''. https://doi.org/10.1007/s42943-021-00021-z in JGBC, {{Authority control Performance management Metrics Business intelligence Indicators