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How to Develop Key Performance Indicators

Key Performance

Key Perfromance Indicator’s are those things that are associated with either goals or objectives, whatever you’re calling them. Those elements of your plan that are the expressions of what you want to achieve by when. Those quantifiable outcome-based statements. So, KPIs answer that quantifiable piece of your goals and objectives.  When developing your KPI’s, it is important that they have these four attributes:  measure, target, data, and frequency.

They come in three different types, but before we get into that, it is important to make sure. So we’ll talk about that in just a minute but before we do put in great KPIs together and making sure they work well for you, you need to have these four attributes. And before we talk about those four attributes, I just want to say the reason they need to work well for you is because KPIs are the heartbeat of your performance management process. They tell you whether you’re making progress and ultimately we want to make progress against our strategy. So KPIs are the thing that do that for us.

So you’re going to live with them a lot. So let’s make sure they’re really good. Okay, so the four things you need to have in order to make sure your KPIs work for you are, number one is your measure. So the measure is the verbal expression very simply in words of what are we measuring, which is fairly straightforward. The tricky thing is, is we need to be as expressive as we possibly can with our measures. So number of new customers, that’s fine. There’s nothing wrong with that but a little bit advance or a little bit more expressive would be number of new customers this year or number of new customers for a certain product or a certain service.

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So what is it? Yeah, so we’re really clear and when it comes to measuring it on a monthly basis, you’re going to want to be as clear as possible. So number of new customers let’s say this year. Number two is our target. Our target is the numeric value that we want to achieve. So a couple of things that are important about this is, the target needs to be apples-to-apples when a goal date is set or the due date is set. So we want to achieve a thousand new customers by the end of the year. So the due date and the target work hand-in-hand. The other thing is that measuring the target need to work hand-in-hand. So it’s a number, so this is a number. This is a percentage, this is the percentage. You get the idea. Third thing, we actually run a report on this data. So where is it coming from? Be clear about what the source is.

Most organizations have all sorts of data sources, fragmented systems. So making sure you identify where this data is coming from will save you a lot of time. And then frequency. So how often are you going to be reporting on this KPI? Ideally, you’re running monthly strategy reviews to report on the progress of your plan at least monthly, in which case we’d like to see monthly KPIs. So you’ve got to be able to pull the data monthly in order to make that happen. That’s not always possible but let’s try to get there. Certainly some organizations are weekly and others are daily. Monthly is a good place to start.

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So frequency, great. So now we know the components that we need to have in place in order to have our KPIs. Here are some different types of KPIs that you might think about as you’re putting your plan together. So they are just straight up broad numbers. I call these widget counting. There’s nothing wrong with widget counting. They don’t necessarily tell a story and I’ll talk about how to make this tell a story in a minute, but this is just simply widget counting, number of things. The second thing is progress. So this is really often used. It’s great and we use this which is express as percent complete, percent complete of the goal, percent complete of a project wherever it might be. It’s a project type measure. It’s a good measure if you don’t have quantifiable measures or you can’t get the data and you just want to track the performance of the goal as it relates to the action and is being completed under it.

The third type of indicator is the change-type indicator, what percent increase in sales. Making this better would be percent increase in sales compared to last year and the ideal is 22%. So you can see how that starts to be more expressive and work with the target. So this tells us a little bit more of a story than this one does, right. And if you want to actually make your widget counting measures tell more of a story, like this one does, you might change something like this to read percentage of new customers acquired compared to same time last year.

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So that’s an example. Okay, so now we know what we have to have in place and kind of different types of measures to get our ideas flowing. Let’s talk about one thing that you might take your measure right to a next level and that is, think about a fact that there are leading and lagging measures. So leading and lagging indicators. So percent increase in sales or sales is a lagging indicator. It occurred. It’s an outcome. If you want to make sure that you’re on track, you might have a KPI in place which is telling us whether we’re going to hit that increase, such as your pipeline, meaning number of leads or the size of your pipeline.

So we don’t want to over rotate on this necessarily but we do want to make sure we have a combination of leading and lagging measures when we’re looking at a performance on a monthly basis. So with that, it’s all we have for today. Hopefully you have what you need to write great KPIs for your organization. Happy strategizing and don’t forget to subscribe to our channel. .

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