A key performance indicator KPI can be defined as a quantifiable measure that an organization can use to measure its performance in meeting strategic, financial or operational goals. Normally the KPIs selected are according to industry standards & feature in the company annual reports. Hence, choosing the right KPIs and finding the ways to improve upon it, is central to the success of an organization.
For example, an FMCG company that has launched a new variant of soap, the KPIs can be the market share, sales of the product, profitability from that product etc. For an IT company, the performance can best be measured by the growth in annual profit, turnover of employees, number of new clients added etc.
Normally, KPIs can be classified into
i) Financial Perspectives like cost per unit produced, profit per unit sales, revenue per employee
ii) Internal Business Perspectives like inventory turnover ratio, manufacturing lead time, sales turnover ratio
iii) Learning and growth perspectives like employee turnover, employee skillsets and training requirement, new employee requirements
iv) Customer Perspective like market share, old customer retention, aftersales services etc.
The steps involved in identifying the KPIs include
i) Defining the business process
ii) Identifying the requirements of the business processes
iii) Determining the qualitative or quantitative measure of the result and comparing with the benchmark and
iv) Monitoring and controlling and measuring variance