If you are looking for growth so that your company can improve results and also management performance, it is likely that you will at some point come across the importance of KPIs reporting.
In order to understand everything you need to know, we have prepared this objective and easy-to-understand article.
After reading it, you will be able to start applying this concept for your business and thus benefit from data-driven decision making setups.
What is a KPI?
KPI is an acronym standing for “Key Performance Indicator”. These indicators are defined by management in order to measure performance metrics of several projects or processes within the company.
Example of KPIs (from Qlik Sense Demo Retail Margin Erosion)
Based on these indicators, it is possible to identify improvement opportunities that align with pre-defined objectives.
Its use is a must at large corporations, and every day more encouraged for small corporations. KPIs are the best way to maintain open communication between employees and keep them on the same page.
As each business has its own objectives that require a specific assessment, it is only natural to have a variety of KPIs which must be developed according to each case.
KPIs in practice
Imagine, for example, an factory that has three assembly lines. At the end of every year, managers need to know the total number of employees hired and dismissed. The indicators should show the volume of employee turnover.
On its own, this number may not say much, but if we compare the volume of hiring and dismissals for each of the lines with the total number of workers in the sector, we can identify a turnover percentage for each assembly line.
This percentage is a KPI and can easily identify where there is greater employee stability and where there is a greater need for change.
Example of KPIs (from Qlik Sense Demo Retail Margin Erosion)
With this factual information, we can now detect problems, such as a supervisor having difficulties managing his staff or the need to reassess the working conditions in a specific sector.
Business Intelligence
The great advantage in structuring good KPIs is being able to transform what otherwise would be random numbers into business knowledge. It is necessary to understand what type of information is most useful for managing the business.
As we are used to always looking into the same indicators, such as sales volume, expenses and profitability, we tend to leave aside other data that can be just as favorable.
There are several numbers that are lost to managers, but not all of them actually bring the relevant knowledge to enable them to make precise strategic decisions.
The importance of KPI reports
Their importance lies in encouraging the exchange of information between employees at all levels of an organization. Thus, employees are aware of how much their performance is contributing to achieving the company’s goals.
In addition, when engaging KPI indicators, managers can correctly analyze the numbers and decide whether projects are proceeding satisfactorily, or whether changing course is necessary.
How to choose a KPI?
If your goal is to track work performance, choosing the appropriate KPI depends on knowing which sector you need to leverage at the moment. In a project with several stages, choosing the wrong indicators can lead to an inadequate view of the situation.
Example of KPIs (from Qlik Sense Demo Retail Margin Erosion)
Imagine you are a store owner and you choose to only measure the inflow of customers. The indicator shows that there is a healthy flow of people coming to the store, but that does not mean, in fact, that it is being translated into actual purchases or profits.
If you use KPIs only for measuring the flow of people, you might be getting a false impression about the success of your business.
In this case, it would be better to use the conversion rate as a valid KPI to track, which indicates how many sales were made in relation to total store visits.
Choosing the best KPI
1. Business relevance
The ideal KPI needs to show that your business is doing well and that the goal is indeed within reach. If your business is growing considerably, the KPI should show that.
2. Application Availability
For the KPI to be able to measure something and show the correct analysis, appropriate data must be available. You cannot measure the flow of people into the store if no customers enter the store, or don`t have a way of measuring this flow.
3. Importance
There is this thing called “vanity” in the world of metrics and indicators. Using a KPI that despite showing good numbers is not really important for the business, is not the best choice.
4. Frequency
A good KPI always needs to be updated with fresh data. It is this period of time that allows us to understand the data and to showcase what is actually working and what needs to be adjusted.
KPIs that can be used periodically help in decision making processes.
End Remarks
We covered in detail what a KPI is and how it is fundamental for the company in oder to feed stakeholders with valuable information regarding the main goals of the organization and how they relate to goal achievement measures.
To meet a certain goal, it is important that the team remains involved and engaged, and that performance indicators are not just pretty graphics displayed on a dashboard. It is important to generate action plans based on these KPI insights to constantly improve results.
Learn more about other important subjects:
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