8 Tips to set the best Key Performance Indicators
Key Performance Indicators are a necessity for measuring the progress of any business towards its end goal. They help you in understanding what you are working towards and how much more work you need to put in to reach there. They work as crucial indicators of progress and are even defined as quantifiable performance measurements that show how a company is performing in comparison to its predefined business objectives.
Key Performance Indicators are extremely vital for any organisation as they help in:
- Clarifying the current and future expectations for any business
- Work as a point of reference to compare results
- Implementing a consistent approach to achieve particular goals
- Increasing employee motivation and engagement
- Eliminating inefficiencies and maximising available resources
- Making employees more accountable for their work
How to set Key Performance Indicators
Now that you have understood the necessity of Key Performance Indicators for businesses, here are some effective tips to help you set the right KPIs that suit you.
What is the objective of your KPIs?
Before you can figure out exactly which KPIs to track, you first need to understand what is the objective of setting them. Think about relevant objectives or goals you want to achieve that can help your business do better. Ensure that these objectives are specific and important for the success of your brand, instead of them being vague and not well thought out.
Identifying key goals you want to achieve through setting KPIs forms the basis of the whole process. If not done right, you will end up wasting time, effort, and money.
Determine the number of KPIs
Once you’ve determined your specific objectives and are clear about where you are heading, you can decide on how many Key Performance Indicators you want to set. It is suggested that you have no more than three KPIs for each goal so as to stay focused and not get pulled in too many directions. As a whole, aim to track no more than 9 Key Performance Indicators – 3 KPIs x 3 goals.
Start with linking your goals to your Key Performance Indicators so that each performance measurement works as a way to reach a certain objective. If a KPI doesn’t serve as a means to work your way to a particular goal, then you might want to remove that.
Clarify the KPI components
There are four main components to consider when setting your Key Performance Indicators:
- Measure – This defines what you want to measure and how you want to measure it
- Data Source – This clarifies how and from where you will collect the required data for analysis
- Frequency – This determines the number of times or how frequently you will access data from the KPI Data Source as well as review the performance
- Target – This represents the exact objective or value you want to achieve
Use the S.M.A.R.T. criteria
It is important to make sure you have well-defined KPIs set for your business. A well-defined KPI is one that is properly researched and is targeted towards a specific goal. It should also be comparable for performance tracking and well balanced. Many businesses use the S.M.A.R.T. criteria as a way to clarify their KPIs. S.M.A.R.T. stands for – Specific, Measurable, Attainable, Relevant, and Time-bound.
Set complementary short-term KPIs
A long-term Key Performance Indicator works as the main target for you to reach and is an overall vision of what you want to achieve. Setting complementary short-term KPIs to reach that main target is a great way to stay on track and ensure you achieve success.
Take things one step at a time instead of trying to tackle everything together. For instance, let’s say you have a target of earning $12,000 in 6 months. To achieve this long-term KPI, you can set short-term KPIs of reaching a certain figure each month. Here, if you earn $2000 per month, you will definitely be able to reach your goal of $12,000 in 6 months.
Short-term Key Performance Indicators are a great way to stay on track and ensure you stay on the right path. By analysing your progress every step of the way and keeping an eye on how you are doing, you can easily better your performance when needed instead of waiting until it’s too late.
Objectives and Key Results (OKRs)
People often confuse Objectives and Key Results with Key Performance Indicators, but in fact they are two different frameworks that can be used with each other in a complementary manner. OKRs is a strategic framework that helps with performance and goal management by measuring the outcome of your endeavour.
To differentiate, KPIs measure the process of your endeavour and help you stay on track with your goal by measuring performance. On the other hand, your OKRs will allow you to align your brand’s priorities and measure the progress towards your end goals over time. This also helps in bettering the performance of your KPIs and encourages you to improve.
Clear and straightforward communication of the KPIs
The best way to ensure your KPIs are understood by all relevant parties involved is to set ones that are clear, uncomplicated, and easy to instantly grasp. Communicating your KPIs well will allow everyone to be on the same page and understand their role in moving towards the main goal. This can be done by adding context to your KPIs and making others understand why these are relevant and important for your brand.
Elaborate on why you have chosen said KPIs over others and how you plan on measuring them. Explain your strategy properly and answer any questions the involved people may have as setting a clear foundation is necessary for a smooth operation later.
Communicating your KPIs clearly adds another advantage as the quicker the employees understand the concept, the more they will be able to add in terms of relevant insights and inputs. An open conversation can lead to making your KPIs potentially more efficient.
Review and update your KPIs regularly
As you move forward in your efforts towards reaching your goal, you will have to keep reevaluating your Key Performance Indicators from time to time. Track the progress of long-term and short-term KPIs on a daily, monthly, or weekly basis as required and measure performance.
Updating your objectives and KPIs are extremely important to stay relevant as these are never meant to be static. Update your KPIs and let them evolve and change with your business. By constantly reviewing and readjusting, you will be able to weed out relevant KPI targets that are worth pursuing and ones that are not.
Setting Key Performance Indicators for your business is a great way to achieve success and reach the goals you have set for your company. Without such a framework, it can be difficult to understand whether you are on track and where you need to do better.
Set the right Key Performance Indicators that are relevant and specific to your business. The above tips will help you understand your requirements and create the right KPIs for your brand in order to succeed!