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How can you create actionable and relevant KPIs?

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Key performance indicators (KPIs) are measurable values that show how well a company is achieving its strategic and operational goals. KPIs can help managers and stakeholders monitor progress, identify strengths and weaknesses, and make informed decisions. However, not all KPIs are equally useful and relevant. To create actionable and relevant KPIs, you need to follow some best practices and avoid some common pitfalls.

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Nuno Mendes

Finance manager | Supply chain & manufacturing operations finance | FP&A - Financial planning & analysis
?? Bruno Oliveira, MBA FMVA?

CFO ???? at Swissport | Strategy | FP&A | Leading Finance Transformation | Lean Finance | Operational Excellance |…

1 Align with strategy

The first step to create actionable and relevant KPIs is to align them with your company's strategy and vision. Your KPIs should reflect what matters most to your business and how you plan to achieve your desired outcomes. For example, if your strategy is to increase customer loyalty, your KPIs could include retention rate, net promoter score, or customer lifetime value. To align your KPIs with your strategy, you can use frameworks such as the balanced scorecard, the OKR model, or the SMART criteria.

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Nuno Mendes

Finance manager | Supply chain & manufacturing operations finance | FP&A - Financial planning & analysis
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Actionability and relevance are key aspects in the design of any KPI. Actionability: The KPI needs to have clear ownership and all inputs that are used in its computation need to be unambiguously and readily available and need to represent dimensions that are clearly understood by its stakeholders and with no questions about the impact of management actions on its development and on existing performance incentives. Relevance: KPI's should be aligned with the business performance objectives of a certain business unit / manager, and, in turn, those should be aligned with the overall performance goals of the organization. One key aspect is to avoid perverse incentives that would reward the correction of past intentional bad performance.

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2 Choose the right metrics

The second step to create actionable and relevant KPIs is to choose the right metrics that can accurately and reliably measure your performance. You should avoid metrics that are vague, irrelevant, or misleading, and focus on metrics that are specific, meaningful, and actionable. For example, instead of using revenue as a KPI, you could use revenue growth, revenue per customer, or revenue by segment. To choose the right metrics, you can use the RACI matrix, the data quality scorecard, or the data-driven decision making cycle.

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3 Set realistic targets

The third step to create actionable and relevant KPIs is to set realistic and achievable targets that can motivate and challenge your team. You should avoid targets that are too easy or too hard, and balance them with your resources, capabilities, and expectations. For example, if your target is to increase sales by 50%, you should consider whether you have enough budget, staff, and time to reach it. To set realistic targets, you can use the SMART criteria, the benchmarking method, or the stretch goal approach.

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4 Communicate and visualize

The fourth step to create actionable and relevant KPIs is to communicate and visualize them clearly and consistently to your team and stakeholders. You should avoid jargon, ambiguity, or complexity, and use simple and concise language, charts, and dashboards. For example, if your KPI is to reduce customer complaints, you should use a line chart to show the trend, a bar chart to show the distribution, or a pie chart to show the categories. To communicate and visualize your KPIs, you can use the data storytelling technique, the data visualization best practices, or the data dashboard design principles.

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?? Bruno Oliveira, MBA FMVA?

CFO ???? at Swissport | Strategy | FP&A | Leading Finance Transformation | Lean Finance | Operational Excellance | International Speaker | C-Level
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Na minha experiencia, é importante que os KPIs conduzam para uma a??o. A principal ferramenta para isso é a cria??o de metas, que garantam um desempenho operacional alinhado com o planejamento estratégico. Essa meta deve ser revisada periodicamente, e a importancia de cada KPI também revisada para manter-se alinhada com a estratégia. Para isso, a metodologia de BSC (Balanced Scorecard) é um poderoso aliado da gest?o.

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5 Monitor and review

The fifth step to create actionable and relevant KPIs is to monitor and review them regularly and systematically to track your performance and identify any gaps or opportunities. You should avoid complacency, bias, or inertia, and use feedback, analysis, and action plans. For example, if your KPI is to improve employee satisfaction, you should use surveys, interviews, or focus groups to collect feedback, use descriptive, diagnostic, or predictive analytics to analyze the results, or use the PDCA cycle, the agile methodology, or the kaizen approach to implement improvements. To monitor and review your KPIs, you can use the KPI dashboard, the KPI report, or the KPI review meeting.

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6 Adapt and update

The sixth and final step to create actionable and relevant KPIs is to adapt and update them as your business environment, strategy, and goals change. You should avoid rigidity, irrelevance, or obsolescence, and use innovation, experimentation, and learning. For example, if your KPI is to increase market share, you should use market research, competitor analysis, or customer feedback to identify new trends, opportunities, or threats, use A/B testing, prototyping, or pilot projects to test new ideas or solutions, or use the learning loop, the growth mindset, or the fail fast principle to learn from your failures and successes. To adapt and update your KPIs, you can use the KPI lifecycle, the KPI audit, or the KPI refresh process.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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How can you create actionable and relevant KPIs?

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1 Align with strategy

2 Choose the right metrics

3 Set realistic targets

4 Communicate and visualize

5 Monitor and review

6 Adapt and update

7 Here’s what else to consider

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