KPIs are high level, so are different from day-to-day management data, scorecards, etc – ie they are NOT everyday ‘Performance Indicators’, Ratios, or Variance Analyses which are produced for a specific manager so they can analyse, manipulate and make tweaks to systems and processes. KPIs provide an OVERVIEW of the business, triggering further inquiry if necessary.
For choosing effective KPIs follow these 6 simple steps:
A. Work out the audience and their objectives
KPIs are to be reviewed and shared – they are a Summary used as a way of keeping an eye on important areas and activities, but not used to run those areas and activities on a daily basis…Did I say “summary”?, it is worth repeating… The audience of KPIs is most likely up one level from the activities being reported on – so when producing your KPIs you need to ‘tier’ them. Thinking about the various levels of management, and who is reading the report is vital – then rethink your business information levels of detail to match the tiered pyramid structure of management.
Detail should be decreased as you move up that structure to avoid information overload and engender responsibility at the lower levels.
Remember: One manager’s critical Key Performance Indicator will be unimportant, including to too much detail, for another manager higher up the organisational tree.
Each audience will have different objectives to achieve, and these need to be teased out and clarified before the relevant KPIs can be applied. Spend some time understanding exactly what are the outcomes that are critical to your audience’s success.
B. Be Clear about the Message
When choosing your KPIs for reports two messages are vital Key and Indicator.
Addressing the Key part – any KPI you choose should be one of only 6 to 8 KPIs on any report – more than 8 begins to create a level of detail that undermines the primary relevance of the indicators, so always consider context (more on that later).
Addressing the Indicator part – well designed KPIs only deliver a message that will instigate one of two decisions; either ‘do nothing’ or ‘investigate’!
Recognise a KPI’s job is to tell you one of these three things:
- Things are looking bad
- Things are looking good
- Things are OK
For a KPI to be useful they also need to enable easy decisions and instigate action in each of these scenarios.
- Things are looking bad: Decision = need to investigate, Action = ask for more information
- Things are looking good: Decision = need to investigate, Action = ask for more information
- Things are on Track: Decision = no need to investigate, Action = none required
If your indicator is revealing more information than that is probably too low level, therefore not a KEY Performance indicator; it is not acting as an “Indicator” of performance but providing information about how and why the outcome happened.
So, taking into account the audience and understand what objectives they are trying to achieve will help you work out what messages your indicators need to be providing.
By the way, if the information on any report you have is not enabling decisions DITCH IT! – see Create useful reports – not more data…!!!