A project wants to quickly improve key customer KPI for which history data is also available
What Are Key Performance Indicators (KPIs)?Key performance indicators (KPIs) refer to a set of quantifiable measurements used to gauge a company’s overall long-term performance. KPIs specifically help determine a company's strategic, financial, and operational achievements, especially compared to those of other businesses within the same sector. Show
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Key Performance Indicators (KPI)Understanding Key Performance Indicators (KPIs)Also referred to as key success indicators (KSIs), KPIs vary between companies and between industries, depending on performance criteria. For example, a software company striving to attain the fastest growth in its industry may consider year-over-year (YOY) revenue growth as its chief performance indicator. Contrarily, a retail chain might place more value on same-store sales, as the best KPI metric in which to gauge its growth. At the heart of KPIs lies data collection, storage, cleaning, and synthesizing. The information may be financial or non-financial and may relate to any department across the company. The goal of KPIs is to communicate results succinctly to allow management to make more informed strategic decisions. Key performance indicators (KPI) gauge a company's output against a set of targets, objectives, or industry peers. Categories of KPIsMost KPIs fall into four different categories with each category having its own characteristics, timeframe, and users. Strategic KPIs are usually the most high-level. These types of KPIs may indicate how a company is doing, although it doesn't provide much information beyond a very high-level snapshot. Executives are most likely to use strategic KPIs, and examples of strategic KPIs include return on investment, profit margin, and total company revenue. Operational KPIs are focused on a much tighter timeframe. These KPIs measure how a company is doing month-over-month (or even day-over-day) by analyzing different processes, segments, or geographical locations. These operational KPIs are often used by managing staff and are often used to analyze questions that are derived from analyzing strategic KPIs. For example, if an executive notices company-wide revenue has decreased, they may inquire as to which product lines are struggling. Functional KPIs hone in on specific departments or functions within a company. For example, the finance department may keep track of how many new vendors they register within their accounting information system each month, while the marketing department measures how much clicks each e-mail distribution received. These types of KPIs may be strategic or operational but provide greatest value to one specific set of users. Leading/Lagging KPIs describe the nature of the data being analyzed and whether it is signaling something to come or signaling that something has already occurred. Consider two different KPIs: the number of overtime hours worked and the profit margin for a flagship product. The number of overtime hours worked may be a leading KPI should the company begin to notice poorer manufacturing quality. Alternatively, profit margins are a result of operations and are considered a lagging indicator. Types of KPIsFinancial MetricsKey performance indicators tied to the financials typically focus on revenue and profit margins. Net profit, the most tried and true of profit-based measurements, represents the amount of revenue that remains, as profit for a given period, after accounting for all of the company's expenses, taxes, and interest payments for the same period. Financial metrics may be drawn from a company's financial statements. However, internal management may find it more useful to analyze different numbers that are more specific to analyzing the problems or aspects of the company management wants to analyze. For example, a company may leverage variable costing to recalculate certain account balances for internal analysis only. Examples of financial KPIs include:
Customer MetricsCustomer-focused KPIs generally center on per-customer efficiency, customer satisfaction, and customer retention. These metrics are used by customer service teams to better understand the service that customers have been receiving. Examples of customer-centric metrics include:
KPIs are usually not externally required; they are simply internal measurements used by management to evaluate a company's performance. Process Performance MetricsProcess metrics aim to measure and monitor operational performance across the organization. These KPIs analyze how tasks are performed and whether there are process, quality, or performance issues. These types of metrics are most useful for companies with repetitive processes such as manufacturing firms or companies in cyclical industries. Examples of process performance metrics include:
MarketingMarketing KPIs attempt to get a better understanding of how effective marketing and promotional campaigns have been. These metrics often measure conversation rates on how often prospective customers perform certain actions in response to a given marketing medium. Examples of marketing KPIs include:
ITA company may desire operational excellence; in this case, it may want to track how its internal technology department is operating. These KPIs may encourage better understanding of employee satisfaction or whether the IT department is being adequately staffed. Examples of IT KPIs include:
SalesThe ultimate goal of a company is to generate revenue through sales. Though revenue is often measured through financial KPIs, sales KPIs take a more granular approach by leveraging non-financial data to better understand the sales process. Examples of sales KPIs include:
Management may tie bonuses to KPIs. For salespeople, their commission rate may depend on whether they meet expected conversion rates or engage in an appropriate amount of leads. StaffingCompanies may also find it beneficial to analyze KPIs specific to its employees. Ranging from turnover to retention to satisfaction, a company may have a wealth of information already available on its staff. Examples of human resource or staffing KPIs include:
Examples of KPIsLet's take a look at electric vehicle-maker Tesla (TSLA) for a few examples of KPIs in real life. These numbers are all from their Q4 2021 earnings release. Vehicle ProductionDuring the quarter, Tesla produced a record 305,840 vehicles and delivered 308,650 vehicles. Production is a big deal for the company because it has consistently been criticized for being bad at ramping up. Increased manufacturing scale means more market share and profits for Tesla. Automotive Gross MarginFor the quarter, Tesla's automotive gross margin expanded to 30.6%. Gross margin is one of the best measures of profitability for Tesla because it isolates its vehicle production costs. Tesla managed to expand its gross margin in Q4 even as sales of lower-priced models outpaced its higher-margin models. Free Cash FlowTesla's free cash flow clocked in at $2.8 billion during the quarter. That represents a vast improvement from the $1.9 billion free cash flow in the year-ago period. Tesla's current level of free cash flow production suggests that the company is reaching a scale of profitability without the help of regulatory credits. KPI LevelsCompanies can use KPIs across three broad levels. First, company-wide KPIs focus on the overall business health and performance. These type of KPIs are useful for informing management of how things are going. However, they are often not granular enough to make decisions. Company-wide KPIs often kick-off conversations on why certain departments are performing well or poorly. At this point, companies often begin digging into department-level KPIs. Department-level KPIs are more specific than company-wide KPIs. These types of KPIs are often more informative as to why specific outcomes are occurring. Many of the examples mentioned above are department-level KPIs as they focus on a very niche aspect of a company. If a company chooses to dig even deeper, they may engage with project-level or sub-department-level KPIs. These KPIs are often specifically requested by management as they may require very specific data sets that may not be readily available. For example, management may want to ask very specific questions to a control group about a potential product rollout. When preparing KPI reports, be prepared to "drill down". Begin by showing the highest level of data (i.e. company-wide revenue), but be prepared to show lower levels of data (i.e. revenue by department, then revenue by department and product). Developing KPI ReportsWith companies seemingly collecting more data every day, it can become overwhelming sorting through the information and determining what KPIs are most useful and impactful for decision-making. When beginning the process of pulling together KPI dashboards or reports, consider the following steps. Step 1: Discuss goals and intention with business partners. KPIs are only as useful as the users make them to be. Before pulling together any KPI reports, understand what you or your business partner are attempting to achieve. Step 2: Draft SMART KPI requirements. KPIs should have restrictions and be tied to specific, measurable, attainable, realistic, time-bound metrics. Vague, difficult to acertain, or unrealistic KPIs serve little-to-no value; instead, focus on what information you have that is available and meeting the SMART acronym requirements. Step 3: Be adaptable. As you pull together KPI reports, be prepared for new business problems to appear and further attention to be given to other areas. As business and customer needs change, KPIs should also adapt with certain numbers, metrics, and goals changing in line with operational evolutions. Step 4: Avoid overwhelming users. It may be tempting to overload report users with as many KPIs as you can fit on a report. At a certain point, KPIs start to become difficult to comprehend, and it may become more difficult to determine which metrics are actually more important to focus on. Advantages of KPIsA company may wish to analyze KPIs for several reasons. KPIs help inform management of specific problems; it's data-driven approach provides quantifiable information useful in strategic planning and ensuring operational excellence. KPIs help hold employees accountable. Instead of relying on feelings or emotions, KPIs are statistically supported and can not discriminate across employees. When used appropriately, KPIs may help encourage employees as salespeople may realize their numbers are being closely monitored. KPIs are also the bridge that connects actual business operations and goals. A company may set targets but without the ability to track progress towards those goals, there is little to no purpose in those plans. Instead, KPIs allows for companies to set objectives, then monitor progress towards those objectives. Limitations of KPIsThere are some downsides to consider when working with KPIs. There may be a long time frame required for KPIs to provide meaningful data. For example, a company may need to collect annual data from employees for years to better understand trends in satisfaction rates over long periods of time. KPIs require constant monitoring and close follow-up to be useful. A KPI report that is prepared but never analyzed services no purpose. In addition, KPIs that are not continually monitored for accuracy and reasonableness do not encourage beneficial decision-making. KPIs open up the possibility for managers to "game" KPIs. Instead of focusing on actually improving processes or results, managers may feel incentivized to focus to only improving KPIs tied to performance bonuses. In addition, quality may decrease if managers are hyper-focused on productivity KPIs, and employees may feel pushed too hard to meet specific KPI measurements that may simply not be reasonable. Pros
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What Does KPI Mean?KPI is an abbreviation for key performance indicators, data that has been been collected, analyzed, and summarized to help decision-making. KPIs may be a single calculation or value that summarizes a period of activity such as "450 sales in the month of October". By itself, KPIs do not add any value to a company. However, a company can use this information to make more informed decisions about business operations and strategy. What Is an Example of KPIs?One of the most basic examples of a KPI is Revenue Per Client (RPC). For example, if you generate $100,000 in revenue annually and you have 100 clients, then your RPC is $1,000. A company can use this KPI to track its RPC over time. For example, a company may notice its RPC has doubled in the past three months. A company may choose to change their company's business approach if it wants minimize the amount of revenue per client or wants to continue minimizing the number of clients it revenue is earned from. What Are the 5 Key Performance Indicators?KPIs vary from business to business, and some KPIs will be more suitable for some companies compared to others. In general, five of the most commonly used KPIs include:
How Do You Measure KPIs?It depends on the actual KPI being measured. Generally speaking, businesses measure and track KPIs through business analytics software and reporting tools. This includes everything from the collection of data via reliable sources, the safe storage of information, the cleaning of data to standardize it format for analysis, and the actual number-crunching. Last, KPIs are often reported using visualization or reporting software. What Makes a KPI Good?A good KPI provides objective and clear information of progress towards an end goal. It tracks and measures factors such as efficiency, quality, timeliness, and performance while providing a way to measure performance over time. The ultimate goal of a KPI is to help management make more informed decisions. The Bottom LineKPIs offer an effective way to measure and track a company’s performance on a variety of different metrics. By understanding exactly what KPIs are and how to implement them properly, managers are better able to optimize the business for long-term success. What are the 5 key performance indicators?What Are the 5 Key Performance Indicators?. Revenue growth.. Revenue per client.. Profit margin.. Client retention rate.. Customer satisfaction.. How can customer service KPI be improved?There are 3 specific ways that companies can improve their customer service KPIs:. Hire More Human Agents.. Outsource Customer Service.. Bring AI Into The Organization In The Form Of Virtual Agents.. What are the 4 main KPIs?Anyway, the four KPIs that always come out of these workshops are:. Customer Satisfaction,. Internal Process Quality,. Employee Satisfaction, and.. Financial Performance Index.. What are key KPIs for project management?Project Management KPIs
Top project management benchmarking measures include return on investment (ROI), productivity, cost performance, cycle time, customer satisfaction, schedule performance, employee satisfaction and alignment with strategic business goals.
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