Key Performance Indicator – How Effective Is It in Measuring Performance

HR Management
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In the field of business, there are plenty of things that you need to take responsibility for. After all, there are just so many moving parts that need to be working together in conjunction with one another.

Having these parts move and work together in synchronization is what business is all about. Time and again however, you will need to look back at how much progress you have made and how much better it can be made further.

This is exactly where a Key Performance Indicator or a KPI in short is used to measure the performance of your company. Every business corporation has some form of goals and deadlines that it wants to meet. In order to find out if they have met said targets, a KPI can be used to measure the state of organizational health that the company has attained currently.

The Basics

Let’s start off with the basics.

We have just explained that KPI is an abbreviation for Key Performance Indicator, but exactly does it do? It is a quantifiable measurement that is used by companies to measure the progress they have made towards their goals. It varies from business to business depending on tons of factors like individual performance, priority etc. and so on.

Furthermore, there are 3 primary characteristics that define a KPI. They are as follows:

  1. Quantitative: Presentation in the form of numbers
  2. Practical:Integration with other existing corporations
  3. Actionable: Applicable to produce the desire kind of change

It must be ensured that the KPI is calculated based on actual data. It must be legitimate in nature and there must not be any sort of discrepancies present. Also, it needs to be ensured that all of the factors that are not within the reach of the company should not be able to interfere with the results. Overall, the idea is that the KPI should be calculated in an enclosed environment that is free from any sort of bias.

Effectiveness

So the real question that is begging to be asked is how effective this system is in measuring the performance of a company. Can such a thing even be quantified to a single number? Is it really possible to use mathematics to find out the level of progress a company has made? Well, the answer to that is a yes – to an extent.

The work done by a company is something that can be understood in full only by the person running it. The KPI only gives an estimation rather than a complete understanding of the situation at hand. But it does give some idea about the progress made right? How exactly you ask? Let’s discuss some of that right now.

  1. Simplicity

Quite possibly the most important reason why a KPI is used is because of its simplicity. Obviously, a lot depends on the implementation of the user but in general, the use of a KPI is as simple as it can get for anyone. The simplest example is by calculating how much profit you have made in contrast to past months. An easy figure to calculate but extremely simple nevertheless.

Because of how easy it is to comprehend and even apply, a KPI makes for a perfect benchmark in terms of understanding where your company stands in the context of a certain criterion. You don’t require any sort of technical knowledge to understand something like this. This is quite possibly the best part about using a KPI for progress measurement.

  • Relevance

Another great thing about using a KPI is that it is always relevant no matter what. After all, it is calculated after taking into account all of the necessary information about the currentstate of the company. This means that nothing is outdated in your calculations and the numbers produced at the final stage will be for all of the latest occurrences.

Obviously, you will also need to take measures to ensure that this property of KPI is maintained at all times. If the information based on which the KPI is calculated is false, all of the following calculations will also be wrong. As such, care must be taken and the responsibly must be given to a manager who is careful about this kind of stuff. The presence of an outdated detail however small can lead to a world of disaster.

  • Timeliness

The effectiveness of KPIs with respect to time is also quite impressive. The thing is, KPIs need to be calculated after constant periods of time. As such, all of the analysis and observations made within this time period allow for timely decisions and actions to be made. Because it is done periodically, even if something does not improve as estimated it can always be worked upon during the next same period of time.

Having it go on regularly ensures that all of the ongoing patterns are recognised properly and taken advantage of if possible. If this was not the case, then the reports collected would be outdated and the overall effectiveness of it would be diminished by quite a lot. Keeping up with things as they pop up is the best approach to most things in life. The same rule applies for a KPI as well.

Overall

As you can see, the use of a KPI can significantly increase the effectiveness of your company’s workforce. It is only a matter of time until every business corporation starts applying these things for their own benefits as well. There are plenty of reasons why it works so well and some of them have been mentioned above. If you are convinced of them, feel free to give it a spin. 

Key Performance Indicators – The Term That Keeps You Ticking in Your Career

First, let us understand the term – KPI or Key performance Indicator. It is a very important terminology in Human Resources. It is defined as a measurable value that shows how well a company is on the way to achieve success in business goals. Ok, let us break it up.

Key

It should denote a few important metrics that your organization follows. It should indicate the highest standards that you and your company have set out to attain.Many KPIs do not serve the purpose; you need to have less of them. Then, only you can attach some sort of tangibility to the same.

Performance

Anybody can tell, what performance means.In the workplace scenario, performance is the measure of how you are doing work. It is the completion of a certain task, with the application of knowledge, skills and functions. Now, performance can be work related or behavioral. You have to keep that in mind.

Indicator

Indicator is not the end result. It is simply a direction, in which you are supposed to work to achieve your goals.

So, the summary is that KPIs are important determiners, when it comes to analyzing your job, work and responsibilities.

Measuring Employee Performance

There are number of ways, that you can measure employee performance at the work place.

  • Graphic Rating Scale is one of them. It is a normal scale, w9ith numbers ranging from 1-5, 1-10, as the case may be. It points to different performance areas in an employee’s job description. Scales are used primarily, to assess behavioral characteristics, through a set of terminologies, against how frequently, the work is done or not.

Graphic rating scales can be customized as per business needs.

  • The second-most important rating type is through 360 degree-feedback.The system, utilizes all the viewpoints of people working in the department.  Everyone’s viewpoint is taken into consideration, when doing 360 degree feedback of employees. The juniors, same level and seniors feedback is extremely important for this type of evaluation tool.
  • Self-Evaluation or Self-Appraisal is another tool for evaluation and measuring employee performance.An employee is asked to evaluate his or her own performance in this kind of evaluation process. There may be multiple choice questions and answers, essay type ones or a combination. Such evaluations are taken into account, to give scope to the employee to explain his/ her situation. All, 21st century companies have this evaluation tool as a constant for performance appraisal process.

Key Questions:

  1. Attach a current position description; if applicable, make note of any significant changes since last year’s performance review.
  2. Which position responsibilities do you view as most important? Why?
  3. Have there been any special circumstances that have helped or hindered you in doing your position this year? If yes, what were the circumstances and how did they affect your work?
  4. Since the last review conversation, have you performed any new tasks or additional duties outside the scope of your regular responsibilities?   If so, please specify.
  5. Describe professional development activities that have been helpful since last year (e.g., offsite seminars/classes, onsite training, peer training, on-the-job experience, better exposure to challenging projects).
  6. What are your goals for the coming year and what actions will you take to accomplish these goals?
  7. What could your supervisor/manager do to support you in doing your job and accomplishing these goals?
  8. What else would help you to do your job better and provide greater job satisfaction?
  9. What kinds of professional development activities would you like to do during the coming year? 
  10. What support or information do you need to complete these activities?
  • Management by Objectives is another type of tool, used for the purpose of evaluation and appraisal. Here, employees and their bosses make objectives of the job together. They determine the areas of improvement, strategies and goals that the individual, team and the organization has set out to achieve.

Key Performance Indicators Examples

When an organization has set out to ascertain its goals, then it is the right time to fix your KPIs. These elements of your strategy denote, what you have set out to achieve. These are quantifiable; outcome based and can easily help measure the attainment of goals and objectives.https://onstrategyhq.com

Examples in Sales:

You can determine the KPIs in sales role, by finding out the number of new agreements signed, monetary value for each agreement, number of conversions, average time required for conversion and net sales figures.

Examples in Finance:

Here, you will have to find out the growth in terms of finances, net profit, gross profit, cash flow and inventory turnover.

Examples in Customer Services:

You will gauge the number of customers served, the number of customers retained, Market share and many more.It varies from industry to industry.

Examples in Marketing:

Here, you will be measuring website customer traffic, qualified leads, conversion rates, blogs data, Google AdWords data and conversions, etc.

An HR Job Role also has KPIs

It includes, how effectively recruitment is being done, calculating the attrition rate, the engagement functions of employees, cutting down recruitment costs, the salaries being offered, if they are competitive or more than market standards, the retirement ages, compensation packages, and benefits offered and many more. These measurements are important for the business.

A good set of KPIs, can make your work all the more easy

  • A good KPI can indicate the progress of your work at hand.
  • It can measure the quantifiable portions of the job.
  • It can assist you to compare the degree of performance.
  • It can track the efficiency, effectiveness, quality and other factors.
  • The KPI should be able to define the job properly.
  • It should be easy to understand.
  • It should be cost effective.
  • It should not be stagnant and allow innovation.
  • It should be timely and easily calculated.

So, now you can understand what KPIs are all about and they have direct repercussions on the business. It is one of the determining factors of all businesses.

Author Bio

Nancie L Beckett is a Human Resource Professional, with an MBA degree from the prestigious Stanford University. She has also worked in the corporate sector for 6 years and also teaches the subject to Post-Grads. Michelle has unique take on all problems connected to the subject and its applications. She utilizes unique strategies to difficult issues at workplace.