Understanding Key Performance Indicators (KPI’s)
Understanding Key Performance Indicators (KPIs)
Key performance indicators (KPIs) are numerical or qualitative benchmarks measurements of how efficient a plan is. They give real data on not only what the goal is but what progress is being made toward that goal, showing everyone involved the impact they’re making day to day.
Their greatest value is that they turn vague goals like “improve customer satisfaction” into something you can actually measure. Doesn’t “decrease customer complaints by 50% this quarter” sound a lot more effective?
This makes KPIs central to an HR professional’s toolkit – and therefore a topic worth delving into at length.
Think about it. It only makes sense that high-performance organizations need to focus on measurable results. Without this, they lose both focus and engagement, two elements most employees crave.
Earlier in my HR career, I was blessed to be surrounded by many organizational development experts. One of the key pointers I learned from them was that if you measure a task, the majority of people will try to improve the results if given the chance.
So what do most organizations that operate within high-performance principles measure? That depends on the industry.
For instance, in manufacturing, quality, production, safety, and profitability are always shared front and center. This is true all the way from the boardroom down to the third-shift employee in a remote company facility.
Churches, meanwhile, might measure attendance, staff turnover, and volunteer participation. Or for a ministry, it could be conversions to Christ, project funding, website analytics, and country presence, to name a few.
I’ll admit I used to feel confused and overwhelmed by KPIs. It took me a while to get a meaningful understanding of them.
But that was many years ago. I now not only understand them, I appreciate how intensely useful they can be. I’ve even helped countless organizations develop meaningful KPIs.
And I’ve seen amazing results in the process.
So… What Exactly Are KPIs Again?
Simply put, a key performance indicator is a measurable value of how an organization is hitting its goals. You can think of KPIs as dashboards that give you at-a-glance views of how different parts of the organization are doing.
Revenue… Customer satisfaction… Production efficiency… Safety incident rates… These are all examples of what KPIs can track. Though really, they can monitor progress on any important metric, from sales targets to sustainability efforts.
Why Are KPIs Important?
Obviously, every organization wants to be more effective. So anything that can (ethically) make them more so is a bonus.
But there are a few key reasons why KPIs in particular are so useful:
- They help everyone involved focus. With so many things going on every day, KPIs shine a light on what’s truly important so you and yours can prioritize activities that really move the needle.
- They create accountability. Measurable targets make it easy to see where teams are underperforming early on. That way, you can take appropriate action to get things on track.
- They provide clarity around expectations. It isn’t always easy to understand what management wants to see going forward. So metrics that can make them clear can go a long way in keeping employees focused and effective.
- They drive motivation. When employers and employees can see concrete progress in what they’re doing, it proves their work is contributing to big-picture success. This boosts team engagement and morale.
- They lead to better decisions. The data KPIs provide helps you understand what’s working well and what needs more attention. That way, you can make smarter choices.
Focus. Accountability. Clarity. Motivation. Insight.
What organization wouldn’t benefit from that list?
How to Use KPIs Effectively
KPIs have to be implemented thoughtfully to work. They are not a magic concept you can simply say out loud or write out on paper to make your desired results appear.
Knowing that, here are some tips to put them into practice:
- Link KPI targets directly to organizational goals. Don’t just measure random things! You want KPIs that clearly map back to organizational objectives so you can see that progress is happening.
- Focus on your 3-5 most critical KPIs. Tracking too few can devalue aspects and outcomes that are critical to your operations. Tracking too many can dilute their impact and makes prioritizing difficult. Therefore, identify the ones that offer the most value.
- Set challenging but realistic targets. Impossible goals lead to frustration, but easy targets don’t push growth. Find the sweet spot that properly motivates your team.
- Define how data will be collected upfront. Without a clear process, data quality really suffers. Make sure responsibilities and tools are set, evaluated, and maintained to capture reliable data.
- Review KPIs frequently. Don’t just set them and forget them! Regular check-ins ensure that teams are on track or can course-correct early if needed.
- Keep refining KPIs. As objectives evolve, so should your KPIs. Continually tweak them to link back to what matters most in the moment.
When you do, your key performance indicators can work for you in ways you have to see to believe.
KPIs in Action
To make this practical, let’s look at a few examples of common KPIs and how organizations use them…
Product Quality: KPIs can identify defects per thousand units produced. This helps organizations monitor how many units are failing quality checks that can then be improved on. When you decrease defects against a target, you drive better product consistency.
A defect goal is easily created. If the organization has 5/1000 (0.005) defects, the goal could be a defect rate of 0.0025 – which is a 50% reduction.
Naturally, product quality is important across every industry, including higher education and non-profits. But an exact organization’s defect goal can look different depending on what exactly is being measured.
Workplace Safety: The “lost-time incident rate” tells you how safe your workplace is. It compares injuries resulting in missed work time to total hours on the job. When this drops, it means you’re avoiding harm and keeping your crew productive.
One common calculation is the “days-away severity rate.” This records the average number of days injuries kept employees from work. To calculate it, you simply divide the number of lost workdays by the number of recordable safety incidents.
Admittedly, you could find that you could have a high injury rate and low severity rate this way – meaning that people are getting hurt but not severely. That’s preferable to a high injury with high severity, obviously. But most organizations should have zero accidents as their goal across the board.
Customer Satisfaction: Tracking things like customer satisfaction (CSAT) or the Net Promoter Score shows how your clients actually feel about what you provide. High marks mean they approve and will likely stick around to grow with you.
In short, make your customers happy and success will follow!
Your calculation for this KPI could simply be customer complaints per thousand sales. And similar to the product quality explanation, you can replace the input to suit your specific organization.
You probably already know what your customer satisfaction goal is, but make it as specific as possible. Say your organization is at 20/1000 (0.02) complaints. In that case, you could determine to cut that by half down to 0.01.
Production Efficiency: The Overall Equipment Effectiveness assessment rolls up how available, quick, and quality-oriented your machines are into one simple metric. Optimize OEE, and you can churn out more goods without incurring extra costs.
And, of course, efficient operations increase your revenue… bless your employees… and improve the communities in which you do operate.
Create the base line or profitability for the organization, then translate it into employee terms. So if you’re measuring your breakeven point for a production line, come up with a breakeven number per shift.
This calculation could be made by your engineering and production teams. But say they project 20,000 units per hour as your production rate goal. The KPI calculation would measure any deviation from the goal number, either above or below.
So if production is cut short by 19,000 units per hour, the calculation would be 19,000/20,000 = 95% of goal attainment. Or if they exceed the goal, the calculation could be 20,000,000/21,000 = 5% over goal attainment.
KPIs for Nonprofits
There are plenty of other ways KPIs can work for you depending on the type of organization you run, and the different types of goals and objectives you have. Here are three for non-profits specifically…
Member-Engagement KPI
This one tracks what percentage of your members are really engaged: how many are talking the talk and walking the walk.
Are they showing up for programs, volunteering, giving back financially, and otherwise helping to really make your organization grow? Maybe only 30% of your base is actively involved right now.
Maybe lower still.
Set a goal to bump that engagement up to 40% over the next year. You can get more members off the sidelines and in the game by doubling down on the programs that are already working. Likewise, rethink ones that aren’t connecting.
If more people are invested, your whole community will feel that love.
New Members Added KPI
Growth matters, so tracking new members is huge. Set a target to add 50 new members to your non-profit every month.
If you see you aren’t hitting that target, get introspective about your outreach.
How can you connect better with more folks in the community? Get creative! New ideas should be welcome (though properly vetted, of course).
When more people join your mission, it builds serious momentum. So get out there and share the word!
Donation Revenue KPI
Money matters, even for non-profits. That’s why we advise looking at total monthly donations and aiming for 10% growth year-over-year.
Consistent giving means your programs stay solid. If you spot any dips in donations, tackle that ASAP. And try asking members directly how your non-profit entity can earn their support.
Keep the faith that donations will rise, and act accordingly!
KPIs for a Variety of Industries and Organizations
If you run neither a non-profit nor traditional moneymaking business, don’t worry. There are almost certainly KPIs for your organization too.
We’ve included three particularly useful ones below, though there are plenty of others out there to research and review.
Lead Conversion Rate KPI
Isn’t it high time to turn those leads you have into actual deals? Ask yourself: What percentage of leads become customers for your business right now?
Ideally, you want to set your sights on 25% conversion.
This is not an impossible goal. To get there, follow-up faster with leads, nurture them along, and coach your team on closing skills.
Every lead is precious. Treat them that way, and you’ll see more of them stick around.
Higher conversions will pump up your revenue big time, making the effort more than worth your while.
Asset Utilization KPI
You’ve got trucks, planes, and/or other heavy equipment just sitting there collecting dust. What a waste!
An idle asset isn’t earning your organization any revenue. But a fully utilized one drives your organization forward.
So use what you’ve got to the maximum!
Let’s get that utilization percentage up by scheduling everything tighter and routing them smarter. An 85% utilization rate would be a great target to shoot for.
Customer Retention KPI
Look at what percentage of customers stay loyal to you each year.
Is it 80%? Awesome! That’s a solid start.
But there’s no reason not to aim even higher still…
Reduce your customer churn by improving satisfaction through better services and products. Make them feel the love!
Keep your people happy, and they will keep you happy by returning to your organization in ways that keep the revenue and relevance flowing.
Final Thoughts
Here’s the bottom line about KPIs…
They make goals clear and provide valuable insights to help teams work smarter. When used right, they drive better decisions, accountability, and results!
Unlike what I used to think – and you might currently think – KPIs are not meant to complicate your life. Implemented effectively, they give you the information you need to guide your team forward into bigger, better, and more effective phases for your organization.
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For further actionable insights, reach out to In HIS Name HR right here. We help organizations build high-performance human resource programs designed to build your workplace into the engaging, effective, integrity-filled space you want it to be.
Contact us today! You and your employees will be grateful you did.