Key Performance Indicator

Key Performance Indicators (KPIs) are quantifiable metrics used to determine progress towards organizational goals. They are often visualized with icons so that their value can be assessed very quickly.

Contents

Key Performance Indicators
KPI Communication
See Also
Sources and further reading

KPI Identification
Identify a Goal

As a prerequisite to identifying KPIs, is the identification of the goals of the organization that will enable it to serve its mission and bring value to its stakeholders. Once these goals have been identified, KPIs are put in place to monitor and measure them. This means that the goals themselves must be quantifiable. It is a good practice to apply the SMART principal to a KPI's associated goal, requiring it to be:

Specific
Measureable
Actionable
Relevant
Time-framed

A goal that is common across many associations is to increase the number of members that enroll in the association or any of its committees and councils. This objective can be implemented and associated with KPIs as follows:

Apply the SMART Test

Specific: The goal should be adjusted to be more specific, clearly defining the scope of membership where an increase is desired. It should also define the target increase amount either in numbers or as a percentage.
Measureable: This goal can be easily measured by examining the current number of members and tracking changes to that number over time.
Actionable: This goal is actionable as there are several steps that the association can take to attempt to increase membership including marketing, retention and incentive strategies.
Relevant: Membership is a critical success factor for the association, making this goal relevant to the organization and its mission.
Time-framed: The goal needs a defined time frame that indicates the point in time that the goal needs to be reached. Some KPIs have recurring time-frames such as 'increase sales by 5% quarterly' while others have to be re-evaluated and adjusted at the end of a defined time period.

After applying SMART, the resulting goal may now read 'Increase membership in the Association by 10% in 2007'.

Identify the KPIs

To track progress against this goal, a minimum of two metrics is required: Members Gained and Members Lost. In order to meet the goal, Members Gained must be larger than Members Lost in 2007, resulting in a positive net gain. The net gain must equate to at least 10 percent of the membership base at the beginning of the year.

For simplicity's sake, assume that membership on December 31st, 2006 is 1,000. A 10% increase requires that membership on December 31st, 2007 be at least 1,100. This can be expressed in a formula as Membership Goal = Current Membership * 110% and the increase amount of 100 members can be expressed as (Members Gained - Members Lost) >= 100.

The obvious Key Performance Indicator that measures progress towards the defined goal is Membership Net Gain. In addition to tracking this KPI, the two underlying metrics (Members Gained and Members Lost) can also be called out as individual KPIs with their own target values as shown below. The first image shows all three of the KPIs using a typical traffic light icon.

Members Gained: Goal = 200 or more
Members Lost: Goal = 100 or less
Membership Net Gain: Goal = 100 or more

KPI Communication

To maximize their value, KPIs need to be communicated in a clear, concise and timely manner. While they can be depicted through simple text, they are often associated with icons such as those shown below. The first image shows all three KPIs using a common traffic light icon. The icon displayed is determined based on the current value of the metric compared to its goal. Members Gained gets a green light because the current value of 208 has already exceeded the goal of 200. Members Lost has a red light to indicate that the number of members who have chosen not to renew has exceeded the set goal of 100 or fewer. Finally the Net Membership Gain has a yellow light because it has not yet met its goal, but it has passed a predetermined value that puts it in a 'yellow' area that is not considered as high risk as red would indicate. The second picture shows the details of the Net Membership Gain KPI. Because the current actual value of 85 falls above the warning value of 75 but below the goal of 100, the yellow icon is assigned.

Figure 1 (below)

Figure 2 (below)

The figures above are taken from [Microsoft Office SharePoint Server], however there are many other applications that can be used to create and display advanced KPIs including Microsoft Excel 2007 and SQL [Analysis Services]. There are also several applications available to integrate KPIs with other organizational metrics in the form of a [Dashboard] or [Balanced Scorecard].

See Also:
Business Intelligence
Balanced Scorecard
Dashboard

Sources and further reading:

Read more about Key Performance Indicators here: http://en.wikipedia.org/wiki/Key_performance_indicators

Learn how to create and publish KPIs using Microsoft Office SharePoint Server http://office.microsoft.com/en-us/sharepointserver/HA100800271033.aspx

Learn how to create KPIs using Microsoft Excel and Microsoft SQL’s Analysis Services: http://blogs.msdn.com/excel/archive/2006/01/10/511487.aspx

More information on SMART: http://en.wikipedia.org/wiki/SMART_%28project_management%29

The core of this entry was written by:
Ann Wallinger
Susquehanna Technologies
e: annw@susqtech.com

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Last modified at 4/15/2009 7:40 AM by System Account