How to choose KPIs

Key performance indicators (KPIs) are a mode to measure and monitor the performance of an organization, business unit, department or specified activity. They are focused on activities that are critical to the success of the business. It is not to be confused with Key Result Indicators (KRIs), Result Indicators (RIs) and Performance Indicators (KIs), which serve slightly different purposes.

KPIs have to be chosen carefully in order to give valuable information. On one hand, the target has to be defined clearly to choose the correct measure. Once, this has been defined, the adequate KPIs have to be chosen. These should be defined in a way that is understandable, measurable and meaningful. So, there must be a strong link between the activity measured and the input factor observed. This depends very much on the department and the specific activity in question, because a KPI should tell the manager in the end, what actions need to take place.

To give an example: The number of parts rejected due to low quality would not serve to indicate performance in Marketing, but might be very valuable to quality control or supplier evaluation. They might give information whether new frame agreements with the suppliers give a positive impulse on the delivered quality or if more drastic actions have to be considered.

SMART objectives as known from project management also apply in this case. Ideally, KPIs should be Specific, Measurable, Achievable, Relevant and Timely.

These modes of performance measurement are often linked to performance improvement projects. Usually, the Web Controlling Objectives are not only to measure the performance of a certain activity to indicate the status-quo, but to measure actual improvement or effectiveness and efficiency over a period of time. The number of visitors of an online store could indicate the effectiveness of a Marketing activity, a mailing, for instance.