Deriving Key Performance Indicators Meaningfully

By Hardik Harsora,Co- Founder of Effex Business Solution

This article was originally published by Silicon India

Mumbai, Sept 2016 – ‘Performance’ is the only thing that creates the difference between good and great. In everything we do, we strive to perform better. Performing better in any subject requires one to master several aspects. If you want to perform better as an athlete, you will need to manage your diet and stay fit, to do that you will measure the calories you intake and your weight. How well you do on these parameters will determine your chances of performing better. Similarly, in every aspect of life performance depends on various parameters and it is these parameters, one needs to control and manage to be a great performer.

 

Business is no different;
to perform better every business has parameters which are known as Key Performance Indicators aka KPI’s. These KPI’s help an organization know, how well they are performing. Key Performance Indicators are at the company level, department level and also at individual level. Indian small and medium size enterprises very often have KPI’s designed for the designation without paying attention to the workflow or the value the department is supposed to create, this may result into a situation where all departments and employees are achieving their KPI’s however the company is still grappling with performance issues. No, I am not talking about incorrect target setting on KPI’s. I am talking about how they are arrived at. KPIs need to be derived, one needs to understand the goal of the business first, break the goal down into objective measureable parameters and then assign these parameters to departments based on the role the department plays and the value it must create for the business. Standardized KPI’s designed for the designation may not help the business achieve its goal. The goal of the KPI is to help you control how the organization navigates to its goal, by giving clear directions to the heads and by resolving challenges on the way.

 

Here’s a method you can use to derive KPI’s, organizations are made up of different departments working together, every department has a customer and a supplier. Customer here is the department that uses the output generated by them and supplier is the department that gives them the input on which they work. As per my opinion, all department heads must sit together and outline what they need as input to do their work well and generate the output that the customer department needs. Once this is done, they must understand what are the important things they must measure to consistently deliver the output required by the customer departments. These measurements can be both qualitative and quantitative. Also, the agreed metrics must be measured for two things, effectiveness and efficiency. Effectiveness would tell you whether the job was done and if yes, was it done as per specifications provided. Efficiency on the other hand will tell you whether the job was done at the right speed, with minimum waste, within budgets etc. The heads then need to agree among themselves on the measurements and goals and sign for their commitment. All of this obviously in-line with what the company’s goals are. It always helps to derive the KPI using this method and involving heads as they then understand how they add value to the bigger picture, have complete commitment to the performance and the most important of all doing it in this way allows heads to discuss issues and unmet expectations that need to be taken care of to reach the goal.

Share on facebook
Share on google
Share on twitter
Share on pinterest
Share on linkedin

Want to transform your business?

Effex Business Solutions has trained 10,000+ entrepreneurs and help them to achieve their goals
Close Menu
Get in touch

Effex Business Solutions

Main Lead Capture