How to set KPIs?

Time to look at KPIs again. This time on how to set it. It is necessary to take the right approach for how to set realistic KPIs (or build performance measures or metrics). KPIs should be useful instruments for managing the success of your organization or company. But if you don’t have a rigorous process to set up KPIs, then you’re going to have a good chance to experience these problems:

  • measures not being used because no-one sees them as relevant
  • no clear links between your measures and your strategy
  • no idea how to measure your goals, especially those intangible, qualitative goals

It’s too easy to take a simplistic approach to setting KPIs. So let’s be thorough on this and follow these five steps to guide you in how to set KPIs, performance measures and metrics that are meaningful (email this page to yourself or a friend):

  1. Get very clear about, and are not, what a KPI or performance measure really is.
    If we want to build KPIs or develop meaningful performance metrics, we have to begin with a strong understanding of what meaningful means. Too many people confuse such things as KPIs or efficiency measurements:
  • Positive participant satisfaction surveys
  • Implement new recruitment system by June
  • Employee Productivity

None of these are true performance measures or KPIs, as neither are clear, unambiguous or quantitative measures. The first is a method of data collection (an enquiry). The second is a milestone (an indicator of project progress, not performance). The third is just some vague and undefined concept which could be interpreted in various ways and measured in even more different ways.

2. Evaluate your existing KPIs and performance measures to determine what to maintain and what to eliminate.If you don’t have a robust and proper approach to developing KPIs and measures right now, it doesn’t mean that they’re all going to be bad. Do not throw baby out with bathwater. Evaluating your existing KPIs and measures is definitely worth a bit of effort, so you can keep the good ones and kill the bad ones.

Start by setting up an evaluation framework, maybe even just in a spreadsheet (use this template), that contains the criteria for excellence KPIs or measures. These four steps for killing off zombie KPIs will give you a simple process for the evaluation.

Then, as you gather all your existing measures and KPIs into your evaluation spreadsheet, quickly audit each one to be sure it has the complete essential details that every measure needs.

And, bear in mind that having too many KPIs is never good. So if you find that everything that moves has a measure, you might want to add to your assessment process an extra iteration of culling.

3. Before you establish success metrics make sure your targets are observable.
Have you noticed that most KPI conversations begin with someone asking a question like this: “What, then, could we measure? “Failing question. It’s leading us down a rabbit hole as we try to repair KPIs fast. We end up creating the wrong KPIs for the targets that we have. Or we end up with very trivial measures that don’t help us make better decisions.

Meaningful measures of performance begin with measurable goals. This means that your goal needs to be worded with sufficient clarity and specificity to imagine how you will recognize it when it becomes real. So you may want to first test if your current goals are tangible, and use that formula to write concrete goals.

4. Don’t use brainstorm to set your KPIs! Instead, use a deliberate technique. Almost every meeting uses a brainstorming event of some kind. But there is one meeting where we can really take it off the agenda: the meeting to establish measures of success.

Brainstorming generates very lame KPIs. A KPI brainstorming session, for the goal of staff engagement, produced this list of actions, vague concepts, milestones, indirectly related measures, and trivial counts:

  • Turnover
  • Sick days
  • Retention rate
  • Introduction of talent management
  • Overtime
  • Staff survey
  • Engagement index
  • Staff satisfaction with their job
  • Leadership development
  • Performance management

So quit brainstorming to set KPIs. To develop performance measures that are the most relevant and feasible evidence of your goals you need to be more deliberate. Use this basic version of the PuMP Measure Design Methodology, and from appropriate and feasible proof of your target, you must build simple and quantitative metrics.

5. Track it ie monitor your KPIs with a dashboard. A KPI dashboard offers you an at-a-glance view of your real-time business results so you can get a clearer understanding of how the whole company is doing. Common terms that are worth understanding in those frameworks include:

  • Key risk indicator (KRI): a measure used in management to indicate how risky an activity is. Key risk indicators are metrics monitored by organizations to provide an early warning of increasing risk exposures in various areas of the business.
  • Critical success factor (CSF): is a management term for an element that is necessary for an organization to achieve its mission. Critical success factors should not be confused with success criteria. Success criteria is most commonly used in project management to determine if the project was a success or not. Success criteria are defined with the objectives and can be quantified by using KPIs.
  • Performance metrics: measure an organization’s behavior, activities, and performance at the individual level and not organizational level. For example, an individual who works in a call centre may have performance metrics such as Number of Calls Answered, Average Wait Time, Number of Successful Calls Processed, and Average Length of Call.

It is important to set the right goals for the key performance measures of your organization to drive high performance and to build a corporate culture of learning, growth and empowerment for your organization.

Check out my related post: What to look out for when building your company’s core values?

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