What are KPIs? (And should I use them?)

I was recently asked this very simple question by a colleague and I felt this would be a great opportunity to shed some light on this topic.

What are KPIs and do I need them?

Simply put: KPI stands for Key Performance Indicator. They are metrics that we use to determine how well we are doing in a particular area. They can be used at any level of the business and are usually shown on reports.

There are many different types of indicators that we can use throughout our business but most can be categorized into two buckets: Leading and Lagging.

Leading Indicators are metrics that we use which will predict future events. A simple example of this is the PTO schedule for our teams. If everyone is projected to be taking time off during the Christmas Holiday, our project schedule could be delayed.

Lagging Indicators are metrics that we use after the event happens. A simple example of this is the amount of errors that we made as a team during the project (our quality).

When starting a new project or process it's always valuable to take some time and outline success measures. A simple way of doing this is by assigning KPIs to various areas of the project.

KPIs are part of a very simple cycle (graphic). We start by planning our project or process and determining our success metrics. Next we take measurements to see our progress and analyze the measurements to determine if changes need to be made. Finally we act on the results.

To close it off, I'd like to walk through a basic example. Imagine we have a simple product that we sell. The customer calls us, we take their order, we create their product, then ship it out. It would look something like this:

Now we can put in some KPIs to figure out how well we are doing. We have set thresholds for Call Duration (Efficiency), Order Accuracy (Quality) and Shipping Time (Speed to Market). By reviewing our KPIs on a recurring basis, we can act accordingly to find areas or improvement within our process.