Using the right KPIs in your Management Software

Last Updated: Monday, February 4, 2013 by Johnathan Briggs

Over these past few months this blog has, for the most part, covered topics related to the use of dashboard software to spot trends in your company’s key performance indicators (KPIs). This will allow you to make better business decisions and take meaningful actions.

However, the myriad of ways which you can use to bend, break, manipulate and shape your KPI data all hinge on one important thing: Having the right KPIs. In this blog, I thought I’d go back to basics, and show you how to determine the right KPIs for your dashboards. After all, what’s the point in having a shiny new dashboard when it can’t show you anything meaningful? To this, I will first revisit the definition of a KPI, and then go over a few tips on how to make the most out of your KPI software.

1. What are KPIs?

This section title is actually a slight misnomer. In this section, I’m actually going to focus on what KPIs are not. You may remember my previous article on how to best show measures and trends. In that article, I defined a measure as a value indicating the performance of a process you wish to observe. This does not automatically make said process a KPI, however.

If a company wishes to measure a process, that process becomes a Metric for a company. As I’ve heard many times elsewhere, while all KPIs are metrics, not all metrics are KPIs. This might seem obvious, but you’d be surprised how many businesses use KPIs that really are just metrics. For a metric to be a KPI, it has to show some facet of the overall progress of a business.

Don’t get me wrong, while the saying ‘you can’t manage what you don’t measure’ is still as true as ever, not all metrics are able to show managers how their business is progressing as a whole. Certain measures, while they do show progress of some kind, aren’t linked to a company’s primary goals. For example, a common goal for a company would be to generate a certain amount of profit in a given time.

While ‘Profit generated’ might be the main KPI for this goal (original, eh?), other measures can also let managers know how well this goal is progressing, even when profit might seem low. These can include number of customers, number of units sold, or customer satisfaction. However, metrics which aren’t related to this goal could include, say, the number of employees compliant with training regulations. While another company may use this metric as a relevant KPI, measuring it in this example tells us nothing about this company’s overall goal.

Also, KPIs are usually measured at regular periods of time. These intervals can then be compared with each other to find trends. In the past, I have seen management reports with useful KPIs to know, but with only one figure recorded. A particular example which comes to mind is ‘Average Production time’, where the figure was the average of the entire dataset; this doesn’t really give managers a whole lot to work with, does it?

2. Types of KPIs

As I have just discussed, KPIs are relative to time, and its’ values should be able to be compared to tell the viewer if progress is good or bad. However, there are many types of KPIs which are useful for measuring progress.

i. Quantitative KPIs

These are KPIs where the actual value is important to know, such as ‘profit gained’.

ii. Directional KPIs

Almost the opposite of the above, directional KPIs focus more on the pattern of the KPI, rather than the values themselves. For example, for the monthly KPI ‘sick days taken by employees’ the actual number of sick days isn’t as important as whether the number of sick days are rising or falling.

iii. Actionable KPIs

These are KPIs which more immediately show if action is required from viewers. By definition, these KPIs usually have a ‘Target’ value associated with them. Whether this target is met or not may require an immediate response from a manager. For example, if a sales target is consistently not met, managers may have to consider more training for their salespeople.

iv. Categorical KPIs

Perhaps self explanatory, these KPIs are significant in that the same value is represented for different relevant groups. If we take our handy sales example, and put it in the context of a DVD retail company, we might categorise sales as being made either online via website, or offline in shops. An increase in online sales could prompt managers to devote more marketing efforts in that direction.

3. Choosing the right KPIs.

Now that we know what KPIs are, how do we choose the right ones for our needs? The simple answer is that there are no hard-and-fast rules. The first thing you need is a thorough knowledge of what you want to measure the progress of. KPIs should tell you whether your progress is decent, good, or bad. By ‘decent’, I mean that progress is going at a rate which requires no immediate action.

Let’s take the example of a Marketing executive. As marketing itself can be tricky to measure Return-on-Investment, the executive has to keep track of how marketing activities impact on his company. Therefore, three KPIs he might choose to measure are:

i. Visits to the company website from social media sites

This can show how successful social media campaigns are, and if they are generating enough interest. If not enough leads are generated from social media platforms, this would tell the executive that perhaps this process needs improvement, or that their target market isn’t to be found on social media, prompting more market research.

ii. Leads Versus Costs

Just because the number of leads are rising doesn’t necessarily mean that marketing activities are a good investment. To truly see if marketing activity is working, you could measure the leads you’re generating against the costs of advertising. If leads and costs both rise at the same rate, then the executive might think about improving his advertising methods.

iii. Conversions from Advertising

Leads can be a good indication of how marketing is doing, but your leads might just be curious people with no buying intention. Therefore, seeing the conversions which different advertising platforms generate allows the executive to pinpoint which of his activities needs action.

Finding the Right KPIs for your Company isn't always easy

As you can see from these examples, as managers delve more deeply into what is required to track progress, KPIs can become a little more complex than just a single measure. However, you must remember that while these KPIs are important to the marketing executive, they might not be required by a CEO, who’s KPIs might be more general (and therefore more powerful).

This article has retraced the steps of the KPI, defining what a KPI is and then showing how to find your own useful KPIs. If this article only shows one thing, it is that the right KPIs for your company must be meaningful to overall progress, and above all, actionable. If you can delve deep into what makes your business tick ,and find the right KPIs to measure this, making business decisions and taking meaningful actions will be far quicker and easier.