Overview with tools, software, best practices and alternatives
What are KPIs and their control procedures?
Key performance indicators (KPI) are valuable tools to an organizations progress that provide key data about key business elements at the right time and to the right people. KPI provides a visual guide to the current operational status of the company in relation to the targets and goals that the company has set for itself.
For a given organization, KPI sets out a specific number of metrics and indicators that would be reflective of the organizational needs of that company. In a sales company, for example, a KPI could consist of the following metrics:
- Revenue per day
- Selling, general and administrative expenses
- Operating income
- Economic profit
- Gross margin dollars
Different companies and organizations will set their own KPIs according to their own priorities, goals and concerns. If a company is targeting growth for example, then revenues and revenue-related statistics would figure at the top of its key performance indicators’ set of metrics.
Key performance indicators cannot work by themselves. A sales number will not have much meaning if there is no corresponding sales figure that would be used for evaluation, analysis and comparison. This data or figure that is used for evaluation purposes is called the Service Level Agreement. An SLA is the figure that represents the ideal statistics for any given field in the company status report. It is used as the basis for decisions on critical matters. An executive exerts control on these critical matters by influencing the KPI to approach SLA values through actions taken in the KPI field that is critical.
To be manageable, a thing must be measurable. In this principle, key performance indicators thus operate, enabling executives to take actions and efficiently manage the company through the measurements of key fields of company data that KPIs provide.
Who uses and controls KPIs and why?
KPIs have a hierarchical structure that corresponds to the various subdivisions within the company. KPIs at the executive level are a little different from the KPIs that frontline workers such as sales reps and delivery clerks use. The KPIs at the top are what may termed as after-the-fact KPI. Management executives use these KPIs to detect abnormalities in the operational status of the company. These KPIs are derived from the bottom of the hierarchy of data and happens afterwards and so are called after-the-fact KPI.
Those top level KPIs that executives use are only for the detection of defects in company operations. For prevention and correction of operational problems, the day to day field reports from frontline workers must be linked to the top level KPIs that are the main indicators of problems or progress in the company.
According to Stacey Barr, a leading authority on organizational performance management; profits and losses, although being the most significant KPI to the company, are terribly lacking in value and timeliness if corrections are to be implemented in a critical situation. In order for a critical KPI to be corrected, data like the ones pertaining to clients and logistics needs to be taken into account too.
How to set up Key Performance Indicators
To set up a set of key performance indicators, management must first identify the key aspects of company operations. Sales and profit margins figure prominently in these and so does operational expenses and excuses. Excuses represent the qualitative aspect that must be included in the interpretations of the quantitative measurements.
The performance of the KPI in emerging scenarios are to be evaluated by executives in light of explanations and rationalizations regarding their behavior. Explanations behind KPI figures are necessary to avoid misinterpretations.
Actions and events that the company can modify to suit its programs are then identified together the measurements and underlying explanations of the said actions and events.
The benefits of having KPIs and their pitfalls
Information is a basic necessity for any organization to survive. Key performance indicators provide specialized information that are tailor suited for the company’s growth and expansion. Aspects that are on the priority list of the company are immediately available for monitoring on the KPI and any malfunctioning in their behavior can easily be spotted upon reviewing of the current KPI status.
The company’s progress with regards to its targeted accomplishment goals can easily be visualized in KPI charts, tables and graphs. If numbers are not sufficient to indicate whether the status is good or bad , they can be color coded to show good, neutral or bad status.
A detailed KPI also allows for the tracing of mysterious errors that may occur in the company organization. If there is a mapping of KPIs from the top to the bottom levels, these mysterious errors can be traced to their origins and the proper actions undertaken to correct it.
On the negative side, KPIs have a tendency to be insufficient when given in numerical figures alone. Sales figures and costs data may be self explanatory to every company worker perusing the KPI, but other figures may necessitate explanations to bring to light the underlying behavior of an anomaly in the KPI. An example of this is the relationship of warehouse expenses data to overall finances. There are various activities in a warehouse and these may be included as explanations when something different happens from the normal KPI. To sum, qualitative analysis must accompany quantitative measurements to obtain sufficient interpretation of KPI values.
Best practices for using KPIs
KPIs are best put to work when they are involved in the monitoring of key aspects of company progress. This monitoring proceeds as follows:
- Investment monitoring – Investments are key elements of a company’s program and as such, their inflow and outflow needs to be updated to executives and managers. Where the investments end up is a key accountability subject that can be shown in the KPI.
- Programs and implemented courses of actions can also be monitored with regards to their effectivity in handling the traffic of transactions inside the company.
- The performance of the company in various company endeavors such as sales, production and delivery can be compared and analyzed in comparison with established figures in the market.
Other practices that helps in ensuring better KPI figures are: independent validation from other workers, having new KPI for new systems and the provisions for the qualitative support of quantitative data.
How Teamreporter can help establishing KPI controlling
Teamreporter is a web based email application that processes status reports from teams of workers – especially those who are remote working – in a way that is cost effective in both time and money. Remote workers submit status reports in their email to the team’s Teamreporter account and all this reports are then summed up into an overview status report that is sent back to each remote worker in a team. Each remote worker can submit figures in his work as KPI to the company and thus establish a monitoring of one field of KPIs. In process, Teamreporter does the following:
- Creating questions that the team members will answer.
- Tailoring the questions to be asked to fit project needs
- Scheduling the sending out of email queries.
- Upon receiving individual team member reports, scheduling of team status updates to every team member.
- Adopting preset business scenarios.
- Prompting team members who forget their reports.
- Arranging an archive of team status reports
It has the following advantages:
- Ready in 5 minutes
- Free startup
- Accessible even to novice users and managers
- No IT software or hardware requirements
- Only email login required for Team members
With these capabilities and advantages, Teamreporter greatly helps in establishing KPI values that the company can monitor and evaluate.
Alternatives to Key Performance Indicators
Balanced scorecards are another measuring and knowledge management tool that also measures data in the key aspects of company organization. The difference between KPI values and balanced scorecards is the emphasis that balanced scorecards put on the parts that humans play in the flowing of data results from the field. Human behavior influence key values in statistical reports in that their strengths and weaknesses tally up on the outcomes of data reporting.
Get Teamreporter - Free!
Teamreporter is free for small teams (up to 4 members)