What are Performance Measures/KPIs?
In business, government and non-profit organisations we measure a multitude of things. We do this to keep on track, to make improvements and to drive our strategy. Unfortunately, often where we think we have a decent set of key performance indicators, actually we have a hotchpotch of tasks, objectives and projects with a few badly described metrics. So what is a performance measure/KPI?
Note: A Key Performance Indicator (KPI) is often referred to as a Performance Measure or a Measure or a Metric. This is perfectly valid, the important thing is the definition not the label, if Metric is term generally used in your organisation, then use it. In a formal Balanced Scorecard structure, as defined by the Balanced Scorecard Institute, the term Performance Measure is used. More frequently in business KPI is used. For the purpose of brevity, the term ‘KPI’ will be used throughout this document.
A Key Performance Indicator is something that can be counted and compared; it provides evidence of the degree to which an objective is being attained over a specified time. The definition above includes a set of words that need further explanation to ensure the statement is fully understood:
Counted: This may seem a little trite, however, counted means that a quantity can be assigned. Examples of quantity are number, percentage or currency. It does not mean a percentage achievement. One of the most frequent mistakes in setting KPIs is to create a project and assess its success through how much work has been done. Just because a project has completed does not mean it has been a success. Success is dependent on the outcome not the activity.
Compared: A number or value may be interesting but it only becomes useful when it is compared to what is optimal, acceptable or unacceptable. Every KPI must have a comparator or benchmark. Using an industry benchmark gives an objective quality to the comparator, objectivity is not required, but it is desirable.
Evidence: The evidence will fall out by ‘counting’ and ‘comparing’ correctly. It is important to strive for a measure that will be observed in the same way by all stakeholders. The evidence should be clear and have specific meaning.
Objective: A KPI only has significance if it is contributing to an objective. If there is no objective, why is it being measured in the first place? This does not mean we should ignore all operational measures; they still need to be in place – but even operational measures should ultimately contribute to an objective.
Specified Time: Everything is time bound; progress towards meeting an objective and therefore a strategy must be measured over a specified period of time.
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