Defining Key Performance

Indicators

Learn how to set key performance indicators (KPIs) to effectively

measure the achievement of operational and strategic goals and
objectives for yourself, your team, and your organization.

Defining KPIs

What is a Key Performance Indicator?

A Key Performance Indicator (KPI) is a measurement
of activity or “quantifiable metric” that reflects how
well an organization or team is performing against
its organizational goals and objectives. KPIs are
measured against a specific target or benchmark
which adds context to each activity being measured.
KPIs can be set for the overall organization,
department, team, or individual.

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 How Do Organizations Use KPIs?
Organizations use key performance indicators
to measure, track, and compare an employee’s
performance and progress toward a desired
performance objective and target. Setting
goals and defining KPIs is usually part of the
organization’s formal performance appraisal
process, but KPIs can also be used to measure
progress on a regular basis. KPIs help define
what departments and staff need to do to
achieve set objectives. KPIs can vary among
organizations, depending on specific priorities
or performance criteria.

Why Are Key Performance Indicators Important?

Key performance indicators are important for organizations,
teams, managers, and employees in the following ways:

• Align employees’ work to the goals of the organization.

• Link employee performance to organizational success.

• Make performance visible: from planned to actual.

• Increase employees’ chances of achieving outcomes

because they are committed to managing and measuring
results.

• Clarify expectations.

• Promote consistency.

• Provide objectivity.

• Improve execution.

• Foster clear feedback.

• Provide focus on what matters most and help prioritize.

• Boost collaboration among teams to achieve a common

objective.

• Improve decision making.

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 KPIs Measure…
• Cost
“If you can’t measure it,
• Productivity
you can’t manage it.”
• Quantity

• Quality
-Peter Drucker
• Percentage

• Ratio

• Frequency

• Comparison

• Difference

Setting KPIs
KPIs define and measure progress toward organizational goals and objectives. Follow these steps
when setting KPIs.

1. Define the objectives of your organization, department, and team.

2. Describe specific actions to achieve the objectives.

3. Define key criteria to measure progress.

4. Identify the results you expect to achieve.

5. Determine how you will measure progress and how often.

6. Identify the timescales.

7. Use benchmarks to compare your performance with others.

7. Outline actions to be taken.

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 Characteristics of Effective KPIs Visible

An effective KPI is simple, measurable and

achievable by staff and the organization. Use
these questions to determine if your KPI is Timely
Simple

effective and meaningful.

Relevant Characteristics Aligned

of Effective
KPIs

Actionable

Achievable

Simple

Is the KPI clear, straightforward, and easy to measure?

Measurable

Aligned

Does the KPI align with the overall strategic goals of the organization and the daily tasks of
the staff that are affecting it?

Actionable

• Can staff take action to influence the KPI?

• Does the KPI prompt decisions and lead to action in the organization?

Measurable

• Can the KPI, whether qualitative or quantitative, be measured with clear, concise attributes?
• If the KPI is quantitative, does it use measurable values such as percentages, industry indexes
(benchmarking), rankings, ratings, or ratios?

Achievable

Is the KPI realistic and achievable for employees and the organization to reach?

Relevant

• Is the KPI relevant to a specific team in the organization?

• Are the right decision makers responsible for measuring the specific KPI?

Timely

• Is the reporting frequency of the KPI effective?

• Are the results of the KPI reported frequently enough so that employees can make timely
decisions, but not too frequently so that they are overwhelmed with data?

Visible

• Is the KPI visible across the organization?

• Will the KPI help motivate employees to be more productive and improve their performance?

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 Types of KPIs

Key Performance Indicator Types

Operational Strategic
KPIs can be categorized into several
different types according to the Logical
Model framework which includes both Inputs Process Outputs Outcomes
operational and strategic elements.

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 Inputs Process

Measures resources invested or used in the Measures the efficiency, quality, productivity,
process (that produce outputs/results). or consistency of an organizational process
or activity.
• Time
• Efficiency (output/input)
• Money
• Quality
• Raw materials
• Days
• Staff
• Cost
• Equipment
• Cycle time

Output Outcomes

Measures how much work is done and Measures the overall results,
what is produced. accomplishments, or impact of the
organizational activity.
• Employees trained
• Customer retention
• Production counts
• Employee satisfaction
• Kits distributed
• Brand awareness
• Roads rehabilitated
• Staff
• Staff recruited
• Equipment
• Projects accepted

• Services provided

• Transactions processed

• Revenue obtained

• New partners acquired

• Communities served

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Other Types of Measures

Project Measures

Measures progress of important projects

or initiatives that can improve operations or
strategic impact.

• Scope

• Resources

• Deliverables

• Milestones

• Project risk

Employee Measures

Measures employee performance and their

capacity, behavior, skills, accomplishments,
and growth.

Risk Measures

Measures risk factors and significant change

in a risk factor that can threaten success and
have an impact on the organization.

• Hazard

• Economic

• Operational

• Strategic

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 Choosing KPIs

The Difference Between Good and Bad KPIs

Staff and managers often struggle with defining meaningful KPIs and find it challenging to determine
whether their current performance is on track to achieve their operational and longer-term strategic
goals and objectives. Organizations and managers commonly make the mistake of setting KPIs that
are vague, meaningless, and measure activities and not outcomes. Follow these guidelines to help you
distinguish the difference between good and bad KPIs.

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 Good KPIs… Bad KPIs….

• Clearly and specifically define what is • Are too generic, meaningless, and not
needed to achieve the objective. specific to organizational or individual
objectives.
• Set a tangible target, ideally using
numbers, values, or percentages. • Use metrics that are too difficult to
• Involve the person or colleagues who will measure.
be tracking or contributing to the same
goal in the KPI creation. • Focus on activities, not results.

• Verify that the KPI is realistic and • Include too many KPIs per objective.
achievable.
• Use metrics you can directly
• Use metrics that are accurate, reliable, and manipulate.
trusted as a source of information that will
lead to better decision-making. • Lack ownership and agreement on
desired results from staff and key
• Limit two to three KPIs per objective.
stakeholders.
• Use consistent metrics that can be used
to determine progress now and compare • Are too narrow and only track a small
results in the future. part of your organization or work
which will give a distorted view of the
• Use leading indicators or metrics that can situation.
anticipate or predict further changes which
will help you get ahead of problems. • Use lagging indicators or metrics that
reflect changes only after a sufficient
amount of time has passed (weeks,
months). This may be too late before
you know if there are any issues.

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KPI Examples

New Projects

Good: Number of projects started

Bad: Increased number of projects

Project Milestones

Good: Percentage of project milestones completed

Bad: Completed project milestones

Projects Completed

Good: Percentage of project completed

Bad: Project completed by 31 December

Employees on Sick Leave

Good: Percentage of employees who went on sick leave

Bad: Reduced number of employees who went on sick leave

Employees Trained

Good: Number of employees who completed 80% of training courses

Bad: Employees completed 80% of training courses

Services Provided

Good: Percentage of services provided that received a four (or above) out of five quality rating

Bad: Superior quality services provided

Orders Approved

Good: Number of orders approved

Bad: Increased number of orders approved by 31 December

Health Care Services Provided

Good: Percentage of individuals in need of health care services who received care

Bad: Health care services provided on time to individuals in need

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