Key Performance Indicators (KPIs) – Meaning and Types

Key Performance Indicators are a type of performance measurement tool. It allows management to measure the performance of a company in a certain area such as profitability. KPIs can help a team to work together to achieve a common set of measurable goals, and provide a very quick way of seeing the actual performance of a goal or strategic objective.

Key Performance Indicators are mostly use to monitor an operation or to measure focusing in the aspects of organizational performance which are most critical for an organization current and future success. Key Performance Indicators (KPIs) are used in order to assess the company’s performance in their business units, division, departments and employees. It is very helpful in providing evidence that certain results have or have not been achieved, enable achievement of intended outputs, outcomes, goals and objectives to be mad by decision makers, help in perceiving differences, improvements or developments which is related to a desired change in a particular context and also it consists of information which shows the changes such as factors or variables that provide a simple and reliable which reflect the changes. There are a few types of performance indicators in an organization with certain characteristics and description.

Key Performance Indicators (KPIs)

Key Performance Indicators (KPIs) should be made clear of what action is needed and can be understood by staff. Usually they are acted upon by the CEO and senior management and good KPIs can make differences to the CEO or superior for constant attention such as with daily calls to the relevant staff. Besides, they have a very significant effect upon the organization. Usually it will affect the critical success factors and more than a balanced scorecard perspective. In other words, when the CEO focuses on the KPI and the staff follows, the organization scores goals in all directions. Key Performance Indicator also has a positive effects or a flow on effect on the other measure.

Before any Key Performance Indicators are determined, it is vital to identify what the organisation’s goal is. After the goals are identified, KPIs will act as a measure of progress towards those goals. Whatever the KPIs may be, they must be critical to the success of the organisation. After the KPIs have been defined and the way to measure it has also been determined, a clear target has to be demarcated which should be understandable by everyone in the organisation. The target should also be specific so that every individual are able to work together towards accomplishing it. To achieve a particular target level of Key Performance Indicator for a company, every department along with the company leaders have to work in synergy towards it.

In short, Key Performance Indicators help an organisation define and measure progress toward organisational goals. Once an organisation has analysed its mission, identified all its stakeholders, and defined its goals, it needs a way to measure progress toward those goals and KPIs are those measurements. Measuring performance allows an organisation to objectively determine what is working and what is not. There are many ways to use KPIs in the business and industry.

Types of Key Performance Indicators (KPIs)

There are four types of key performance indicators which are quantitative, directional, actionable and qualitative indicators. This sub categorization could be an extremely valuable tool for a company in the assessment of its performance.

In quantitative indicators, it is used to measure quantity or expressed it as in a form of numbers. Depending on the data being used and involved, they can be expressed in a number ways. It could be in the form as whole number, decimals, ratios, fractions, percentages and monetary values. This type of indicator is easy to use and compare and it benefits us when it come to comparing data. For example, an organization can use the data to compare a scientific indicator throughout a period of time in order to understand the business trends or the position of a company against the competitor. As an example of quantitative indicators in business world are number of invoices processed, turnaround time, number of payments posted, number of reconciliations completed, number of journal entries posted, annual sales, annual expenditures and etc.

The second type of directional indicators is used to provide the necessity data for a company in order to get a pulse around whether they wish to improve, remain the same or failing. It will be used to help in identifying the improvement or progress as such in comparing last month’s and this month’s sales. Directional indicators are extremely helpful to identify the areas which are not performing effectively or efficiently and also to track and corrective action which is taken in a timely manner or it can be the mean difference in between a company success and failure.

Actionable indicator is used to assist in a company to identify area which they can be changed effectively by taking action. As an example that could be shown is a company would do better by the outsourcing processes. In this, the true benefit can be realized when a company or organization analyzes the indicators in place and take appropriate action. Company’s performance could be assist by these indicators because it is a valuable tool for them in order to stay ahead of the company competitors. If this indicator is being use to their fullest, it will make a great difference in between a highly successful company or whether the company is barely only maintaining.

There is another one type of indicator, the qualitative indicators. In qualitative indicators, it does not show the numeric measures but the depict the status of something which is in more qualitative terms. These indicators are not seem to be appealing but there are some things which are better as compared to the quantitative indicator. For example, how much a poor community is empowered may not be measurable in strict quantitative terms. But they can be graded based on qualitative findings. Whether a cooperative body is properly functioning or not, can be assessed in qualitative terms and then it can be graded.

If a company wish to identify their own company performance, it will be appropriate to use quantitative indicator as it will be easier to understand and view by them. It will be more appropriate and easy to view since the data all will be shown in the form of numbers and it can be clearly seen through the graphs or tables. For company which wants to know about their performance as in the total of sales or profit without the intention to against their competitor, quantitative indicator will be the best indicator to be used. However, for a company or organization that wants to improve in their performance or sales, it will be useful to use directional indicator. This is because in directional indicator, it can help an organization to identify the improvement or the progress of their performance such as their sales or rundown of the company from time to time. This will ease them in looking or identifying what is the reason or factors of the success. It can be the same for them to identify their problems as well if there happen to be a loss rather than profit so they could identify the problem and solve it before it leads to another crisis of an organization or company. It is not a comparison or competition in between the types of indicators but rather depends on own perspectives values and respective importance by an organization or company. Depending on their goal to get from the performance indicators and select which is the one that suits them using it.

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