The benefits of Key Performance Indicators
Most companies try to set clear numerical targets (goals). However, they seldom do a good job of measuring progress toward them.
Unfortunately, very few companies are good at setting and tracking Key Performance Indicators (KPI’s) - the small handful of predictive measures that will ultimately drive goal achievement. Nor do they do a good job of holding people accountable for their achievement.
The book "Transforming Performance Measurement" describes the benefits of Key Performance Indicators:
Directs people’s behavior.
Most employees operate on the following assumption: “Tell me how you measure me, and I will tell you how I will behave.”
Makes performance visible.
You can only manage what you measure. Keeping the scores visible where everyone can see them, shows you how well the various parts of the business are working, and who is performing and who is not.
What gets measured gets done. Employees are faced with many competing demands on their time and resources. When they know the 1 or 2 numbers that their performance will be measured on, it keeps them focused on doing the right things – particularly when it is linked to reward / consequence systems.
Prioritizing a small handful of Numerical Targets (goals) and Key Performance Indicators (KPI’s) enables managers to communicate their expectations to employees in a clear and unambiguous manner.
Data enables you to “manage by fact.” Evaluating employee performance is not about whether people are working hard or being busy. What did they actually achieve?
Larry Bossidy, co-author of the book "Execution" remarked, “When I see companies that don’t execute, the chances are that they don’t measure.” See: Execution is STILL the major challenge for business leaders.
Activities and outcomes that are not measured properly - tend to be fluctuate – with negative implications for the quality of your results.
Holding people accountable for achieving their target level of performance every week / month is vital to ensure the company (and individual) is on the right track.
One of the major causes of failure in decision-making is poor use of data. One accurate measure can be worth a thousand opinions.
Quality guru W. Edwards Deming said that systematic process measurement led to the “profound knowledge” that was essential to top quality outcomes.
One final tip:
KPI’s should be graphed to show trends and the scores color-coded so they can be easily understood at a glance:
Green = Good. Exceeds target level of performance. Praise and recognize the person accountable.
Yellow = OK. Minimum acceptable threshold. Get an explanation and keep a close eye on.
Red = Bad. Unacceptable performance. Urgent attention required.
Business Execution Software makes this easy!