Managing with key performance indicators (KPIs)

The annual goals are set, but how can they be achieved, and what form might the corresponding controlling measures take? Cleverly chosen key performance indicators (KPIs) can help.

There is a variety of KPIs. They can be very valuable and useful to your business, but can sometimes be superfluous or meaningless. Finding the right KPIs is of central importance – less is often more. When defining KPIs, it’s crucial to know what they are for and what can be derived from them. Useful KPIs should meet the following criteria:

• simple to grasp and analyse,
• straightforward to measure,
• meaningful,
• relevant to the company’s success,
• do not conflict with another KPI
• can be updated every month
• tailored to the relevant area of responsibility.

You should set a maximum of six primary KPIs to ensure it’s easy to keep an overview. Sub-KPIs are an option if they flow into the primary KPIs.

What’s important is that primary KPIs contribute to achieving the annual goals.

For each annual goal, you need to ask yourself how they can be achieved and what factors will contribute towards this. This is where the KPIs come into play, as they should represent the decisive contributing factors. These factors are thus defined as primary or sub-KPIs.

Each primary and sub-KPI is determined each month, for example, and compared against the target value. Making projections or determining trends for the target value then shows where action may be needed.

But be careful: depending on the KPI, different warnings for deviating values need to be defined, regardless of the extent and effects of small or major differences. Deviations should be visualized in colour, depending on the level of discrepancy.

You need to examine and analyse any negative deviation closely, especially if it occurs more than once: compare it with the same period last year, look at how the market is developing, specific incidents, etc. The analysis will show clearly whether additional measures are needed to ensure achievement of the goal is not at risk.

Defining these measures often requires further analysis of data, customer surveys, process analyses, etc. The factors, processes, data sources and impact on the relevant benchmark should ideally have been outlined at the same time as defining the primary KPI. This will enable a targeted, rapid response to what has caused the discrepancies.

A simple, graphical representation is useful to ensure the impact of KPI can also be established. This produces active observation on the one hand, and on the other, enables a quick overview of the most important key figures.

Conclusion: KPIs only benefit the team or company if...

…management is behind them,

…responsibility for achieving the KPIs is clearly defined,

…accountability is regularly evaluated and analysed,

…there is willingness to quickly take the necessary action if deviations occur.

With all that in mind, wishing you good luck!