Business KPI: Measurement of Success

Business KPI or business key performance indicators are also known as key success indicators (KSI) are created for the purpose of measuring and defining the progress of the organization toward reaching its stated goals. When a business goes through the process of analyzing its mission, naming those who have a stake in the mission and stating its goals, the business then ready to define how it will measure the progress toward reaching the goals.  These measurements are known as key performance indicators.

Several characteristics of key performance indicators are important to keep in mind in selecting them

First, key performance indicators are not goals, they are simply a quantifiable measurement agreed upon in advance that indicates whether or not a business is making progress toward its goals.  This is why it is important to determine the goals before setting the key performance indicators.  For example, an organization may have a goal to be the most profitable business in the niche which it represents.  In this instance, the key performance indicators will be factors that include financial and profit measurements.  Good key performance indicators when the goal has to do with profit would be Shareholder Equity or Pre-tax profit.  However, 'cost of sales' would not be a good key performance indicator because it does not portray a way to measure the goal of the business.

Next, a business should not select more than three or four key performance indicators at any one time.  The underlying concept here is to keep the attention focused on the measurements. However, even though the over all company may limit itself to three or four key performance indicators to reflect progress toward reaching the company goal, subdivisions or departments--even the company's geographic units can also select a separate goal along with three or four key performance indicators.  These goals are not required to be the same as the company goal, although they should not be at cross purposes.

The key performance indicators must be predetermined.  It's a worthless exercise to set a goal which has already been reached just to say the goal has been met. By the same token, if the business is not going to be able to tell if they met the goal or not, it's also a futile exercise. Both the goal which is central to the company desires and the way to signal whether progress toward the goal is happening should be jointly determined and identified before the start of the period. 

Finally, although goals may be more narrowly defined as the company progresses toward successful attainment of the goal, business key performance indicators should not change significantly during the life of the progress toward the goal.  If measures are agreed upon in advance as being representative of true progress, there should be no need to change those measures. 

To set out in clear language what the desired goal will be and to apply milestone markers along the way toward that goal is a unifying factor in almost any organization.