Measure performance and set targets

Key performance indicators, also known as KPIs, help you measure and evaluate the effectiveness of solutions, functions and processes in your business.

KPIs take into account your business' strategic goals and measure performance against a specific target, defined from a strategic, planning or budget point of view. Measuring KPIs can help you determine if you're likely to achieve your business objectives.

Types of KPIs

Many types of KPIs exist that you can use in your business. You should use the ones that make the most sense for your business and strategy. Most KPIs will focus on one of these objectives:

• improving revenue
• reducing costs
• increasing efficiency
• improving customer satisfaction

Examples of KPIs

Some examples of KPIs include:

• average time to complete a task
• percentage of tasks completed on time
• percentage of overdue tasks
• cost of service delivery
• cost of managing processes
• downtime and availability
• number of complaints received
• volume of tasks per staff
• customer ratings of service
• number of process errors
• return on investment
• debt-equity ratio
• operating margin
• revenue per employee
• employee satisfaction index
• order fulfilment cycle time
• production yield
• customer satisfaction index
• customer acquisition cost

Your KPIs should relate to aspects of the business environment over which you have some control. For example, interest rates may be a crucial factor of performance for a given business, but you can't use the Bank of England base rate as a KPI because businesses have no power to change it. By contrast, you can control your business exposure to fluctuations in interest rates and so this might make a useful KPI.

Why are key performance indicators important?

The purpose of performance measurement is ultimately to drive improvements in performance. KPIs can help you achieve this by allowing you to:

• spot potential problems or opportunities
• set targets for business and staff that will deliver your strategic goals

Find out how to set business performance targets.

Download a key performance indicator assessment template (DOC, 18K).

How to measure KPIs?

After you define a KPI, you will have to determine the best method of measuring and assessing performance against it. It can help to break down the assessment into more manageable components and measure each separately. You must monitor KPIs regularly for them to be effective.

For KPIs to work well as a management tool and keep you on track to achieving your goals, you have to be able to accurately measure and report on the measures. Computer-based management information systems are available for this purpose.