Key performance Indicator (KPI)

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Key performance Indicator (KPI) - short version

(1) A statistical measure of how well an organization is doing in a particular area. A KPI could measure a company's financial performance or how it is holding up against customer requirements.

(2) Leverage variables contributing to business success. Entire set of KPIs is also known as “system of indicators.”

Key performance Indicator (KPI) - long version

Key Performance Indicator (KPI) is an industry jargon term for a type of Measure of Performance. KPIs are commonly used by an organization to evaluate its success or the success of a particular activity in which it is engaged. Sometimes success is defined in terms of making progress toward strategic goals, but often, success is simply the repeated achievement of some level of operational goal (for example, zero defects, 10/10 customer satisfaction, etc.). Accordingly, choosing the right KPIs is reliant upon having a good understanding of what is important to the organization. 'What is important' often depends on the department measuring the performance - the KPIs useful to a Finance Team will be quite different to the KPIs assigned to the sales force, for example.

Because of the need to develop a good understanding of what is important, performance indicator selection is often closely associated with the use of various techniques to assess the present state of the business, and its key activities. These assessments often lead to the identification of potential improvements; and as a consequence, performance indicators are routinely associated with 'performance improvement' initiatives. A very common method for choosing KPIs is to apply a management framework such as the Balanced scorecard.

Key Performance Indicators define a set of values used to measure against. These raw sets of values, which are fed to systems in charge of summarizing the information, are called indicators. Indicators identifiable as possible candidates for KPIs can be summarized into the following sub-categories:

* Quantitative indicators which can be presented as a number.

* Practical indicators that interface with existing company processes.

* Directional indicators specifying whether an organization is getting better or not.

* Actionable indicators are sufficiently in an organization's control to effect change.

* Financial indicators used in performance measurement and when looking at an operating index.

Key Performance Indicators, in practical terms and for strategic development, are objectives to be targeted that will add the most value to the business. These are also referred to as Key Success Indicators.


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