Moving from a Metric to a KPI
We move from metric to KPI by first establishing a target from which we can calculate achievement (as a percentage). We also need a scoring system, so we can determine whether we’re doing good, average, or bad. As we accumulate more data over time, we can compare present and past performances – did we improve? We can also start calculating trends. Our targets may go up or down (e.g. costs or accident rates), so is our actual performance improving at the same rate (or better) relative to our new target?
This type of information is what you find in performance management applications. KPIs are linked to strategic objectives and help express execution in quantifiable terms. They provide quick insight into trends and summary information and drilldown on a dimension (e.g. organization or product), so you can pinpoint the cause of performance problems. For example, imagine a global semiconductor company that’s experiencing a high level of product warranty returns. Using a performance management application, they could drill down on this KPI and identify the source of the problem – a supplier shipping unreliable components.
We can group the metrics upon which our KPIs are derived into three categories:
- Input metrics measure what you did to get the desired result. In our soccer example, these would include how much we spent acquiring players, number of players, depth in position, number of practices, and so on.
- Output metrics measure what the results were. This will give us a sense of what our games were like: number of corners, fouls, free kicks, goal kicks, goals conceded, goals scored, off-sides, passes, percentage in opponent’s half, percentage possession, saves, shots, and tackles.
- Outcome metrics (the most important) measure whether or not we achieved our goal. Did we win the game, the league, the cup?
While it’s important to have a mix of input and output metrics, these are more likely to be associated with operational systems and appear on dashboards. Our scorecards need to have outcome KPIs and show progress over time.
Here’s a real world example from a public health and safety organization that had a goal of reducing the occurrences of a disease in their community by increasing the number of immunizations being given. To this end, they started promoting free immunizations on their website and other mediums. Their KPIs included:
- Dollars spent on immunization services
- Information downloads on immunization and where to get it
- Number of immunizations
- Number of occurrences of the disease in the community
Which of the above is the outcome KPI that most matters?
In part four of this series, I’ll cover more KPI characteristics, best practices, and other considerations.Comments