Today’s “A:360” podcast talks about KPIs and answers the question “What is a KPI?”. Learn what makes a KPI different from a standard metric and why they are so critical for your organization’s strategic success. Take a look at our previous posts on KPIs and how to know if you have the right KPIs for further information on this topic!
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Welcome to today’s podcast for our “A:360” series. My name is Brewster Knowlton of The Knowlton Group, and today we’re going to talk about “what is a KPI?”
KPI stands for “Key Performance Indicator”. A good definition of a KPI is: “a set of quantifiable measures that a company uses to gauge or compare performance in terms of meeting their strategic and operational goals.”
The definition of a KPI has two keywords that I want to point out.
The first [key word] is “quantifiable”. If your key performance indicators can’t be quantified, it’s very difficult to gauge your performance towards your strategic goals. A KPI HAS TO BE quantifiable.
The other key word in that definition is “strategic”. We want to look at what are the strategic goals of our organization and then what quantifiable measures support those strategic goals or enable us to gauge our progress towards those strategic goals.
Those are two key words in that definition that I want to point out that are really critical to what makes a key performance indicator different from just a standard metric.
A standard metric, as opposed to a KPI, is going to be a lot more operational or tactical in nature, and lack some of the strategic focus that a KPI will possess. For example, if you’re a CFO for a bank or credit union, your KPI might be “return on average assets” or “efficiency ratio”. Those are pretty important – often times strategic KPIs.
But there are metrics that support those KPIs that may not be as high level or might not be a strategic like, your operating expenses or perhaps your net income. While those are important metrics, they might not be justified as key performance indicators that directly support the strategic goals that you might have as that CFO. So, KPIs tend to be much more strategic in nature, whereas metrics are more operational and tactical.
KPIs are important regardless of whether you’re an organization just starting out with analytics or one who has a much higher analytics maturity. KPIs are critical because they drive your success towards your strategic goals and they help monitor your progress. You really need to emphasize “what are the strategic objectives of my organization”, and once, those objectives are laid out, ask yourself, “What measures can I create that will determine and gauge my progress towards that strategic objective?”
There’s a great quote by W. Edwards Deming that says, “You can’t manage what you don’t measure”. The important part about KPIs is that if you are measuring the right things, then, naturally, our staff will have a tendency to manage towards what we are trying to measure. The byproduct of this is the organization naturally aligns around the strategic goals simply because we are measuring our success through our KPIs that are aligned with those strategic goals.
In summary, KPIs stands for key performance indicators, and they’re the set of quantifiable measures that a company uses to gauge or compare its performance towards their strategic goals.
That’s all for today’s “A:360”!
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