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How to Define KPIs that Matter

 

What Is A KPI?

A Key Performance Indicator (KPI) is a measurement that has been selected to be the indicator of one’s performance in relation to a stated goal.  Typically, these are purely quantifiable metrics that demonstrate either moving towards or away from said goal.  Not all KPIs are created equal.  Just because something is named as or selected to be a KPI, does not mean that it magically turns into a “good” indicator.  In this article, we will review what makes a KPI useful and a good predictor of goal performance.

What Is A GOOD KPI?

Let’s start by discussing what factors make a key performance indicator “good”.  When creating a new KPI, it’s important to look for an indicator that meets these requirements:

  1. Specific – The measurement should be clearly defined. A KPI that is not clarified can be misinterpreted and/or provide information that is not useful.  Additionally, KPIs need to be oriented towards a goal.  There needs to be a reason for it to be used as a KPI and that reason needs to be specific.  A good example would be, if a provider wants to improve patient experience, to ask patients to rate their satisfaction with wait time, in addition to measuring average wait time.  While average wait time is a good general measurement, only the patient is able to indicate if this value is acceptable or not.
  2. Trackable/Measurable – The entire purpose of a KPI is that it is able to tell the organization the health of a particular function. That means it must be able to be easily and accurately measurable. If it is not easy to track the indicator, then that means it will be infrequently checked.  If it is difficult to measure, then that means it will be difficult to draw conclusions from.  A good place to start is your out of the box reports.  While you’ll want to customize these to be more specific to your goals, the metrics defined are ones that you know are easily tracked or measured.
  3. Simple/Clear to Understand – A good KPI is one that enables decision makers to clearly understand and make decisions. For that reason, simplicity is always best.  To keep your KPIs simple, avoid metrics that may be influenced by multiple variables or are derived from complex calculations.  If you find yourself debating what caused a metric to go up or down or asking for clarification on how a number was derived, these are warning signs that your KPI needs to be refined.
  4. Drives Decisions (Not Purely Informational) – Information that drives decisions is powerful as it does not simply clutter your ability to act. Good KPIs are used for the purpose of drawing a conclusion on the current state of a specific process, department, operation, or progress to a goal. If you find yourself asking, “What does this tell me?” or “I’m not sure how to proceed without also knowing ____.”, then these are clear signs that your KPIs are not actionable and need to be redefined.

Now that you have these four criteria to guide you in knowing what to measure, it is also crucial to think about how much to measure.  Let us look at when you should measure.

How Much To Measure?

Overloading your organization with measurements is not the answer.  Your list of KPIs should be as meaningful as the measurements themselves.  When your KPIs are meaningful and the list is realistic, leaders are tuned in to performance and more engaged in watching the metrics.  This way, you and your organization begin to fall into a habit of checking the health of your metrics. The table below provides general guidance for establishing a strong KPI cadence.

When… How often? How many? Cadence
…it impacts an organizational-wide strategic goal. Always 10-12 overall Real time, daily, weekly, monthly
…it is a core organizational function.
…a critical organizational shortcoming is identified. Usually No more than 3 per leader Monthly, quarterly, annually
…a strategic opportunity or threat is perceived, and the organization needs to have early warning signs.
…you are measuring the quality of work of leaders and/or personnel in the organization.
…you need to compare how your organization does over time (informational/trend). Occasionally One-time report or effort to answer a specific question – budget for a certain number of hours per year to be spent on ad hoc reporting Ad hoc, establish temporary cadency as needed for emergency

*See full table click here

With a healthy set of KPIs being measured on a regular cadence, it’s time to look at our last factor for “good” KPIs.  The reports themselves.

Making The Report.

How do you present this information in a helpful way?  A good KPI, presented improperly, can reduce the impact and helpfulness it brings by hindering the ability to draw a conclusion and, thus, make an informed decision.

When putting together a report to display the KPIs, it should be:

  1. Accessible.  Make sure that anyone can pull the metric(s) and report.  Ease of access and visibility helps keep everyone on the same page and informed about where things stand with regards to the goal trying to be achieved.  If only one person can see or create a report, often a bottleneck is created, and leaders are limited in their ability to react.
  2. Visual and visible. The results should be displayed in a visual and logical way.  For everyone who will see the report, you want to help them draw the conclusions from the metrics and results.  Use colors, graphs, maps, labels, etc. to make the results easily digestible so that less time is spent on trying to understand results and more time is spent acting on the conclusions.
  3. Indisputable.  There needs to be real and well-founded belief that these results are reliable and will yield valid conclusions.  If you find that you are constantly debating if the data is accurate, if it is the right measurement, or if there is a better method to measure, revisit the first four factors discussed to try to refine your KPI.  Socialize your KPI options and share which option(s) you think are the best methods but allow all leaders to give their input.  Ultimately, everyone standing behind the number and acting on it is better than a measurement that is ignored. There should be no arguing over the validity of the measurement.

If you find that you are constantly struggling to understand what is going on and worried that something is wrong, then consider going through your key performance indicators following these guidelines.  You’re likely to uncover several groundbreaking metrics that empower you to act and feel more confident as you do.

Learn more about Golden Source Consultants’ Business Process Services.

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