One way to assess the relevance of a Key Performance Indicators (KPI) is to use the SMART criteria, that is, the letters are generally considered as Specific, Measurable, Achievable, Relevant, and Time.
In other words, you need to consider:
- Is your goal specific?
- Can you measure progress towards this goal?
- Is the goal realistic?
- What is the purpose of your organization?
- What is the deadline to achieve this goal?
How to define a KPI
Defining a KPI is usually a tricky business. The keyword in KPI is “key” because each KPI must be linked to a result of a specific purchase. KPIs are often confused with business metrics. Although they are often used in the same spirit, KPIs must be defined according to critical business objectives.
- Follow these steps when defining a KPI:
- What is your desired result?
- Why is this result important?
- How will you measure progress?
- How can you influence the outcome?
- Who is responsible for the business results?
- How will you know that you have reached your goal?
- How often will you review progress towards the outcome?
As an example, let’s say your goal is to increase sales this year. You are going to call this KPI your sales growth KPI. Here’s how you could define this KPI:
- Increase turnover by 25% this year
- Achieving this goal will help the company become profitable
- Progress will be measured as an increase in revenue measured in dollars spent
- By hiring additional sales staff, encouraging existing customers to buy more products
- The sales manager is responsible for this measure
- Revenues will have increased by 25% this year
- The KPI will be reviewed every month
Be even more SMART on your KPIs
SMART criteria can be expanded to be smarter with the addition of Evaluate and Re-evaluate. These two steps are extremely important because they allow you to continually evaluate your KPIs and their relevance to your business.
For example, if you have exceeded your revenue goal for the current year, you must determine whether it is because you set your goal too low or if it is attributable to another factor.
Are KPIs still relevant and topical?
KPIs often have a negative connotation associated with them. Unfortunately, many professional users are starting to watch KPIs as an obsolete practice. This is because KPIs are victims of the most human problem: lack of communication, and this very often.
The truth is that KPIs are only as valuable as the way you make them up. KPIs require time, effort and employee buy-in to meet their high expectations. The comments make it clear that while key performance indicators may have failed (depending on what you are asking for), their potential value remains in the hands of those who use them.
As noted above, examples of KPIs can be used to provide guidance, but you must consider the specific goals and processes associated with your organization before adopting a template.