It is extremely important for an organization to keep a tap on its progress. As laymen we generally define progress in vague terms like satisfactory, good, average or poor. This type of performance classification will seldom be useful for large organizations to keep a tap on the required areas of improvement and to identify where they are performing satisfactorily. It is important to define some concrete and quantitative indicators which cover all aspects of the organization’s goals. This is where you need key performance indicators, often called performance indicator.
ROBUSTNESS OF KEY PERFORMANCE INDICATORS
Once the key performance indicators are properly defined and calibrated it is easy to keep a tap on the success of the organization on a whole or any particular activity performed by the organization. These may be client facing activities or internal activities as well. It is important to note that the scope of key performance indicators is not restricted to financial organizations and it may include the activities of welfare or community organizations as well.
In order to better understand these key performance indicators we can categorize them as quantitative, practical, directional, actionable and financial. All these categories of indicators when applied together target the achievement of optimum efficiency in all the activities of the organization.
KEY ASPECT IN USING KPIS
As is evident, the most important aspect of using key performance indicators is to define them in a way that they cover all the goals and efficiency targets of the organization. This leads to easy analysis of all round performance of the organization or the particular activity on all the relevant fronts using a single framework. Applications of methods like Balanced Scorecard or SMART criteria ensure the defining of proper key performance indicators.
SMART or the newer SMARTER is a mnemonic which is often used to define key performance indicators. SMART can be expanded as Specific, Measurable, Attainable, Relevant and Timely with the addition of Evaluate and Reevaluate for SMARTER.
- Specific: It is extremely necessary to break down our long term visions into more specific goals.
- Measurable: As discussed earlier the key performance indicators are of no particular use unless the progress can be measured and quantified is some way against the goals.
- Attainable: The goals should be such, that they can be practically achieved given correct policies and implementations. It is important not to be over ambitious neither can we afford to be too lax in defining our goals.
- Relevant: The indices should be such that the achievement or failure to do so impacts the organization or the activity in question.
- Timely: One the key performance indicators are defined and goals fixed we cannot wait forever to achieve. Hence it is important to bind our goals in a time frame.
Following these simple specifications one can define key performance indicators which realistically reflect the organization’s all round performance or the progress on a particular business process or activity.
Applying the balanced scorecard management framework in itself leads to the proper defining of key performance indicators. Balanced scorecard method presents both financial and nonfinancial measures along with the target expectations in a concise manner. The part of this framework corresponding to defining most relevant information leads to the identification of key performance indicators. The basic design of balanced scorecard keeps learning and growth, internal business processes and customers in mind along with the financial aspects.
Key performance indicators have the potential to be extremely helpful in achieving organization’s vision given they are defined and used properly.