Do you know about on how to set properly the Key Performance Indicator in your organization?
If you don't know the exact formula in setting KPI, the only thing that you should know about KPI is that KPIs should always be S.M.A.R.T. - Specific. Measurable. Achievable. Realistic. And Timely.
In reviewing the responses, I see that you have received some very good advice on the definition and use of KPI. I would add to that collection, the following:
1) Remember that for an organizational KPI to be a good measure and effective management tool, you must be able to translate the KPI into key behaviors and goals at the deparmental and individual levels. For example, if Sales Volume is a KPI for your organization, it must be backed up by realistic goals and behaviors for sales personnel, processing personnel, customer service personnel, etc. Without a tie in to the KPI of the organization, the individual will not recognize, directly at least, how they contribute to success.
(2) Be very careful on the number of KPIs you have at the organizational level. For most of my clients, if they try to put in more than 5 KPIs, I question their focus and level of approach.
(3) KPIs can come in several forms. Whatever you do, make sure that one of the KPIs is an integrating KPI...that is, multiple departments are responsible for directly affecting the results shown by the KPI. In my prior example of Sales Volume as a KPI, the Sales Department is probably the one department to focus on. But if I use a Sales Volume / Revenue Collected, I get an indicator of quality of Sales from both a volume perspective and ability to collect perspective. This is a quick example and I would be happy to get very specific if you would like to provide more information.
Keep your KPIs simple. The calculations that underlie your KPIs should also be simple. The basic one is THROUGHPUT defined as REVENUES less (only) TRULY VARIABLE COSTS (those costs that vary directly and incrementally with any incremental change in revenue). The second is this: OPERATING EXPENSES--the amount of money your firm pays out every month (or some other period) supporting operations that produce THROUGHPUT.
PROFIT, then, becomes a very simple calculation: for any given period PROFIT = THROUGHPUT - OPERATING EXPENSES.
A third factor is INVESTMENT--which includes inventories, of course.
You're well on your way with these basics, and it doesn't take an expensive ERP system to gather these basic KPIs either (in many cases).
Key Performance Indicators should be those 6 or 7 indicators that the management team should be focused on that represent the predictors of the health of the business. Typically everything that has an impact on CASH. Some obvious examples are: total and age of receivables, value of inventory, total and age of payables, backlog of orders to be shipped, and value of incoming orders. Other indicators that are specific to a type of business should also be included. Since CASH is king everything that keeps it positive needs to be closely monitored preferably weekly, but definitely monthly.
We select KPIs for companies as it is very difficult, if not impossible, for insiders to select their own for many reasons. This is an art for that requires many years business experience in management and executive roles. These are driven off a Strategic Plan and must be tracked in a time series to be valuable. SMART is for goal setting (MBOs), not KPIs. KPIs are numbers by definition and hence by definition already Specific and Measurable.
KPI's are relative to the goals and functions of any product or position.
People typically have some performance benchmarks to assess position viability, bonuses and performance growth.
Products have KPI's to measure profitability, growth, brand exposure or failure rates (ask GM).
Knowing the goals of the people or products will give you the data benchmarks to establish your KPI's
They also need to be relevant. Too often when i consult with companies i find their KPIs are not aligned with the business goals, when they are not correctly aligned it doesn't matter how SMART they are.
Ask yourself what is the desired outcome of the event/project you are measuring, then what are the key S.M.A.R.T. factors that help you achieve your targets.
Setting SMART targets is always a useful way of defining a KPI once you have one in mind.
I would suggest a slightly different approach 1st. You need to ask yourself some questions about your business. A good place to start may well be to define the following.
Who am I doing this work for?
Who are my clients?
What else is involved?
Why am I doing this?
What is it for?
What reason would
What will it look like when I have finished it?
How will I know when it is done?
How will I measure the end result?
Cost, Time, Quality?
Ensure standards are SMARTER
Assess relevant facts, ideas, skills, experience & resources
… That we already know or have
…That we need to obtain
Consider the options & identify the RISKS
WHAT HAS TO BE DONE
Stating those things that will need to be done!
What will be done
What will indicate that we have been successful?
How can we assess the end product to be confident that it is what is required?
Once you have considered these things you will be able to set yourself some KPIs that make sense and that are achievable.
Key Performance Indicators are usually the result of a Strategic Planning Process that integrates the business strategy with the department and individual goals for the company's success. They become the metrics that are monitored routinely to determine the progress of the company with its strategic business plan.
You have to first have a process set to determine the overall goals of the organization, people themselves, etc. Without a clear plan it is hard to determine success.
Take a look at this link, it might provide an outline for you: http://focuxagency.com/success
Key Performance Indicators are quantifiable measurements, agreed to beforehand, that reflect the critical success factors of an organization. They will differ depending on the organization.
A Key Performance Indicator (KPI) is a measurable value that demonstrates the effectiveness of a business process at contributing to the attainment of key business objectives. By monitoring the right KPIs and business metrics, you gain valuable insight into the performance of your business and, more importantly, gain the strategic awareness you need to make the right decision at the right time. Use these KPI examples and templates to cultivate a data-driven culture within your organization.
Whatever Key Performance Indicators are selected, they must reflect the organization's goals, they must be key to its success, and they must be quantifiable (measurable). Key Performance Indicators usually are long-term considerations.