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What is Key Performance Indicator?

The term "key performance indicator" refers to a measurable indicator of quality over time for a specified goal. Key Performance Indicators give teams goals to strive towards, benchmarks to track progress, and information to help everyone in the company make informed decisions. Key performance indicators assist every element of the organization, from finance and HR to marketing and sales, move forward at a strategic level.

Why Are Key Performance Indicators (KPIs) Important?

KPIs are a vital approach to ensure that your teams are supporting the company's core objectives. Here are a few of the most important reasons to use key performance indicators.

  • Keep your teams on the same page: KPIs keep teams on track, whether they're assessing the success of a project or the performance of employees.

  • Perform a health examination: From risk concerns to profitability measures, KPI gives you a true picture of your company's health.

  • Make changes: KPIs allow you to easily understand your achievements and shortcomings, allowing you to focus on what works and less on what doesn't.

  • Hold your team members responsible: Ascertain that everyone contributes value by establishing key performance indicators that allow managers to view their development and supervisors to take things forward.

Types of KPIs 

There are many different types of key performance indicators. All Key Performance Indicators have one common thread: they're all linked to strategic objectives. Here's a quick rundown of some of the most prevalent KPIs.

Strategic: These big-picture KPIs keep track of the organization's objectives. Managers often use one or two key KPIs to determine how well the company is performing at any particular time. 

Operational: KPIs focus on organizational procedures and efficiencies and often measure performance over a shorter time period. Sales by area, average monthly transportation, and cost per acquisition are just a few examples (CPA).

Functional: Many key performance indicators are linked to specific tasks, such as finance or information technology. Finance KPIs track gross profit margin or return on assets, whereas IT KPIs track response times or median uptime. These operational or strategic KPIs can also be categorized as functional KPIs.

Leading: You should understand the distinction between leading and lagging indicators regardless of the type of key performance indicator you establish. While leading KPIs can aid in the prediction of outcomes, lagging KPIs are used to track what has already occurred. Organizations employ a combination of the two to make sure they're collecting the most valuable information.

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