What does 'KPI' mean ?
A KPI, short for Key Performance Indicator, is a term widely used in business, corporate, and industrial nomenclature. KPIs are designed to measure the effectiveness of strategic business goals. Owing to their focus on the purposefulness of actions, various types of KPIs can be distinguished. Consequently, key categories include financial KPIs, such as net profit; quality KPIs, such as the number of defective units produced; and operational KPIs, such as work efficiency.
Purposefulness: The Key to Determining the Right KPIs
Creating a single strategy for setting KPIs can be challenging. Nevertheless, it is very important to establish clear business goals and a vision for what a given project aims to achieve is crucial.
However, the SMART method proves invaluable in this process, stipulating that goals must be specific, measurable, achievable, realistic and timely.
The strength of KPIs comes from a data-driven world
If the KPIs are well-built and tailored to business needs, and the data used to prepare them are of high quality, then they are valuable indicators. Consequently, it is expected that they will facilitate decision-making, provide satisfaction with the achieved results, and help in identifying areas worth improving."
However, if they were created carelessly, without respect for data analysis and without taking into account the opinions of employees or customers, they may become worthless numbers without context.
Indicators are not everything
An important aspect of presenting KPIs may not only be a beautiful dashboard but also storytelling. This can help recipients better understand where the results come from and what this may mean in a broader perspective.
This can be illustrated with an example, let's say a company generated $55 million in net profits. But is that a lot or a little? How can one know that the employees of this company, in order to achieve such a result, had to work 16 hours a day, which made their desk become their second bed, and the keyboard a pillow? ;)
On the other hand, an excessive focus on numerical indicators and focusing solely on KPIs can lead to ignoring other important aspects of the business that are hard to measure. For example, the level of joy and motivation to work.
In summary, KPIs as numbers or other indicators may prove insufficient to fully understand the entirety of a company's activities. It's worth treating KPIs as a guide and comparing data from different perspectives.
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