Key Performance Indicators (KPIs) are measurable data points used to track performance against a specific set of goals. KPIs should be aligned with core business objectives and, if used correctly, can act as a valuable tool when demonstrating how effectively these objectives are being met. Developing KPIs can certainly be a challenging task but a firm understanding of the common pitfalls involved in their development can make this task easier.
How to Choose the Right KPIs
A firm can set several types of KPIs to measure and evaluate performance across every facet of its organization. However tempting it can be to cast the KPI net wide, it is important to take the time upfront to stop and think about what your company goals are, then choose KPIs that map directly back to and enable you to measure how well you are performing against those goals. The KPIs that add the greatest value are those that one can easily digest and use to provide a clear sense of whether a company is on the right track and where it may need to course-correct. The most efficient way to deal with the wealth of data involved in KPI tracking is through automation. A company that successfully integrates its internal systems with a KPI tracking tool is far more likely to develop effective KPIs as data is consolidated, analyzed, and presented back via a dashboard that highlights trends and patterns in its day-to-day operations. The automation of this process can aid the prioritization of certain business objectives and the timely remediation of previously unseen risks and issues.
It’s a challenge to choose the most useful KPIs for your business. The choices will depend on a company’s objectives, business model, and unique operating processes. Some KPIs are almost universally applicable while others differ by industry. The consumers of the KPIs need to be included in the decision on what data to track to ensure they are getting the answers to questions that will help them drive the business forward. The frequency and sampling used in the measurements are also important factors that need to be agreed upon.
Some of the most common and highly effective KPIs will cover business performance, sales, employee utilization, and project management. To measure business performance, various ROI indicators will help determine if an investment will be profitable. Sales productivity and lead generation KPIs will help sales managers track and influence sales activities. Employee-specific KPIs such as quality, efficiency, and productivity measurements will reveal where improvements are necessary to meet goals.
Project management KPIs are important tools used to measure the profitability of projects and will give insight into timeliness, costs, quality, and stakeholder satisfaction. Comparing the present value of future cash flows to the cost of the project will help determine if a project is worth the time and resources allocated. Maintaining high project profit margins is a driver for the profitability of the entire company which will help create reserves to invest in future growth.
Pinpointing the correct KPIs is critical. Businesses commonly fail to identify the appropriate KPIs, or track too many, making it hard to focus effectively on a specific one. Organizations should identify a set of KPIs that support a clear business strategy, vision, and set of objectives and are vital to decision making. A good KPI is SMART: Specific, Measurable, Achievable, Realistic, and Timely. KPIs should be flexible to ever-changing business requirements and customer demand and regularly reviewed to confirm validity and usefulness. Occasionally, new KPIs need to be introduced.
Utilizing KPIs to drive Business Strategy - Use Case
A financial services company is looking to increase client satisfaction by 8% in the next 5 years for its various individual and commercial segments. Service teams provided quarterly surveys to their retail customers, private banking, corporate banking, and funds services clients. The data collected reflects a point in time view of client satisfaction. By presenting the results in a dashboard, management can pinpoint the specific client segment to focus where improvements and resources are needed and review these KPIs on a year over year basis to achieve long term business strategy.
This use case is an excellent example of a KPI aligned to a larger business strategy. It is Specific: Increase client satisfaction, Measurable: 8%, Achievable: Target 1.6% increase per year, Realistic: Appropriate timeline and has allocated resources, and Timely: Within the next 5 years.
Steer Clear of KPI Missteps
In order to get the most out of a KPI, it needs to be linked to a business strategy. Data collection and information gathering are only useful if it is leveraged to make informed decisions by leadership. Failure to do so will result in time wasted and misguided use of resources. Management teams must insist on KPIs that are relevant to the business and support decision-making.
KPIs should not be linked to incentives such as bonuses or pay raises unless the KPI is specifically intended and designed for such a purpose (e.g., sales revenue as the basis for commissions). The purpose of a KPI is to assist the business in knowing where they are in relation to where they need to be. Linking KPIs to incentives increases the risk of manipulation and reduces KPI utility.
A common mistake with KPIs is that they are not analyzed and interpreted beyond the raw numbers. Management should be reviewing the data as it relates to specific benchmarks, how it changes over time, and understand its significance for the business (e.g., trend analysis, root cause analysis). KPIs need to be a navigation tool that helps guide the company to better performance. This requires an efficient method to distribute KPIs, such as a dashboard presenting the most relevant data, in a format that delivers information and conclusions concisely and in a way that supports decision-making.
KPIs should be evaluated periodically to ensure relevance, and there should be no hesitation to challenge this data and suggest modifications as needed to accommodate changes in corporate priorities.
Finally, KPIs can help a company structure its corporate strategy and provide real data to assist in decision-making. A robust set of KPIs should provide a clear vision of current performance levels and help managers make sound decisions that help companies achieve strategic objectives.
About Monticello
Monticello Consulting Group is a management consulting firm supporting the financial services industry through deep knowledge and expertise in digital transformation, change management, and financial services advisory. Our understanding of the competitive forces reshaping business models in capital markets and digital banking are proven enablers that help our clients drive innovative change programs to be more competitive and gain market share in new and existing businesses.
Sources
[i] Harvard Business Review: KPIs Aren’t Just About Assessing Past Performance - By Graham Kenny; September 23, 2021
[II] Dülgerler, M. (2015). Making better, more responsive organizations. Paper presented at PMI® Global Congress 2015—EMEA, London, England. Newtown Square, PA: Project Management Institute.
[iii] What Is the Importance of KPIs for Performance Measurement? - By UNBOXED STAFF; February 1, 2021
[iv] The 10 Biggest Mistakes Companies Make With KPIs - By Bernard Marr; July 2, 2021
[v] Examples of Key Performance Metrics To Track - By Indeed Editorial Team; February 11, 2021