What Are Key Performance Indicators (KPIs)?

Introduction

In this blog, I will explore the concept of Key Performance Indicators (KPIs) and their significance in measuring and tracking progress towards desired outcomes. KPIs play a crucial role in the success of businesses, projects, and programs by providing objective evidence of performance and informing better decision-making. I will discuss the characteristics of good KPIs and delve into the process of creating effective KPIs.

The Importance of KPIs

Key Performance Indicators are quantifiable measures that help us gauge our progress towards intended outcomes. Peter Drucker's famous quote, "What gets measured gets managed," underscores the importance of measuring performance in order to effectively manage it. KPIs enable us to focus our efforts on delivering the operational or strategic requirements of our businesses, portfolios, programs, or projects.

Types of KPIs

KPIs can be categorized into two types: leading indicators and lagging indicators. Leading indicators provide a measure of progress towards the desired outcome, indicating how close we are to achieving our goals. On the other hand, lagging indicators provide information about the success or failure of our endeavors after the work has been completed.

Characteristics of Good KPIs

There are six main characteristics that make for good KPIs:

1. Objective Evidence: Good KPIs provide reliable and objective numbers that are not influenced by personal opinions or preferences.

2. Informed Decision-Making: Good KPIs measure the right things, providing valuable information to support better decision-making.

3. Alignment with Strategic Imperatives: KPIs should be directly linked to the organization's strategic priorities, reflecting its overall goals and objectives.

4. Trackability: KPIs should allow us to track changes in performance over time, helping us understand trends and identify areas for improvement.

5. Relevance: KPIs must track the aspects that matter to the organization, such as timeliness, efficiency, effectiveness, quality, governance, compliance, team behaviors, resource utilization, and financial performance.

6. SMART Criteria: KPIs need to be SMART, which stands for Significant, Measurable, Achievable, Relevant, Trackable, Ethical, Supported, and Time-bound.

Creating Effective KPIs

The process of creating good KPIs involves asking the right questions and considering various factors:

• Desired Outcomes: Identify the desired outcomes and why they are important to the organization.
• Influence: Determine how you can influence each outcome and who will be responsible for each of them.
• Measurement: Define how you will measure progress against each outcome and establish a review process.
• Achievement: Establish criteria to determine when an outcome has been successfully achieved.
• Communication: Identify the stakeholders who need to be aware of and understand the KPIs.
• Review: Establish a process for regularly reviewing and updating the KPIs to ensure their relevance and effectiveness.

Applying KPIs in Project Management

While some companies, like Tesla, focus on a single metric that matters most to them, the use of KPIs in large, complex organizations is vital. As project managers, we can adopt the KPI process to drive and improve performance on our projects. KPIs enable us to measure progress, track performance, and highlight any issues that may arise.

Conclusion

Key Performance Indicators are invaluable tools for businesses, portfolios, programs, and projects. By providing objective evidence of progress and aligning with strategic priorities, KPIs empower organizations to make informed decisions and drive success. Creating effective KPIs involves careful consideration of desired outcomes, measurement methods, stakeholders, and review processes. As project managers, embracing the KPI process can enhance project performance and deliver desired results.