Full-Form of KPI (Key Performance Indicator)

Importance

  • Key Performance Indicator help an entity, its departments, management, and teams instantly react to such events that can impact its business operations. One may also use it to achieve long-term and short-term strategic goals.Key Performance Indicators help an organization focus on a mutual goal and even ensure that the same aligns appropriately with the predetermined goals and objectives. Therefore, it is very substantial for organizations to evaluate what exactly needs to be measured.

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Types of KPI

  • Quantitative: Quantitative indicators are present along with a number.Qualitative: Qualitative indicators are represented similarly to a number.Leading: Leading indicatorsLeading IndicatorsLeading Indicators are statistics which help in a Company’s macro-economic forecasts & predict the emerging stage of a business cycle. They act as a variable with economic linkage offering details about early signs of turning points in the business cycles, which precede the lagging & coincident indicators. read more can help in forecasting the results of a process.Lagging: Lagging indicators that can display the failure or success post hoc.Input: Input indicators can measure the total resources consumed in deriving results.Process: Process indicators can indicate a particular process’s productivity and efficiency.Output: Output indicators can reflect the results arising out of a particular activity.Practical: Practical indicators which may interface with the processes of the entity.Directional: Directional indicators that specify if the company is performing better.Actionable: Actionable indicators are very much in the company’s control for resulting in changes.Financial: Financial indicators are for performance measurement.

How to find Key Performance Indicators?

A company can find its key performance indicators by establishing clear goals and objectives, outlining the criteria for achieving success, collecting the data, building the key performance indicator formula, and presenting its KPI.

How Do You Measure?

  • Web analytics is the most commonly used tool for measuring key performance indicators. Google Analytics can track all types of data. For example, Google Analytics can track website performance, new customers, sales patterns, etc.One can also measure it through the Snapshot card. This card can display approximately 5 metrics. A snapshot card is considered one of the best ways to quickly access all the information it needs.It can state the revenue required in the continuous period, the prediction for revenue for a month, how the company is performing against its targets, last month’s performance, and the previous year’s performance for the same time frame.Another important tool is the report card. The company can review its report card periodically to measure its key performance indicators. The report card will help the company assess important measures like ROI, productivity, etc.

Examples

#1 – Project Manager Key Performance Indicators

Project managers use these for evaluating performance concerning a particular project.

#2 – Financial Performance

One may use it to evaluate a project’s financial well-being and overall organization.

#3 – Supply Chain & Operational Performance

One may use it to evaluate the efficiency of the supply chain mechanisms.

#4 – Customer Insights & Marketing

One may use it by organizations to learn about customer insights and marketing.

#5 – Information Technology Operations & Execution of Project

One may also use it for evaluating IT operations’ performance and the execution of a particular project.

How to Create & Develop KPI?

While creating and developing a Key Performance Indicator, companies must consider how KPI can relate to a particular business objective. Therefore, it is not the same for all departments and organizations. Moreover, one must customize Key Performance Indicators per the situation of a business and its requirements. Finally, one must develop it in a manner that helps an organization achieve all its long-term and short-term goals and objectives.

One must use the following steps while creating a Key Performance Indicator for a company, its departments, teams, processes, and management:

  • First, one must write a clear objective for each key performance indicator.One must share the objectives with all the company investors, such as equity holders, preferential shareholdersPreferential ShareholdersA preferred share is a share that enjoys priority in receiving dividends compared to common stock. The dividend rate can be fixed or floating depending upon the terms of the issue. Also, preferred stockholders generally do not enjoy voting rights. However, their claims are discharged before the shares of common stockholders at the time of liquidation.read more, creditors, suppliers, vendors, customers, employees, etc.One must review these objectives from time to time.It must be made sure that these objectives are actionable.One must evolve these objectives from time to time to let them adjust to an organization’s ever-changing needs.The attainability of the goals and objectives must be checked from time to time.The objectives must redefine and update as and when required.

Difference Between KPI and KRI

  • It stands for key performance indicators, while KRI stands for key risk indicators.It helps in measuring business performance, while KRI helps in the quantification of risks.The organization uses this to monitor its performance. In contrast, one may use KRI for monitoring the risks faced by an organization, along with the same implications on the performance of a business concern.Key Performance Indicators help an organization learn how well its operations respond to strategic plans. In contrast, KRI helps an organization in identifying the present and potential risks and the implications of not being able to deliver good results in the near time.

Conclusion

Thus, as discussed, companies, departments, management, and teams use KPIs to assess the effectiveness of business operationsBusiness OperationsBusiness operations refer to all those activities that the employees undertake within an organizational setup daily to produce goods and services for accomplishing the company’s goals like profit generation.read more. Key Performance Indicators must not be confused with Key Risk Indicators. These two terms are poles apart from each other. One may also use Key Performance Indicators to achieve the organization’s goals and objectives. It helps an organization focus on its goals and ensure that it fulfills within a predetermined period.

This article has guided the Full Form of KPI – Key Performance Indicators. Here, we discuss how to find KPIs, measure them, and create and develop KPIs, along with the importance, types, examples, and differences between KPIs and KRI. You may refer to the following articles to learn more about finance: –

  • Market IndicatorsLeading vs Lagging IndicatorsGross LeaseGross Earning