Key Performance Indicators

• Business Management Theory
• Key Performance Indicators

Introduction

Key Performance Indicators (KPIs) are used by organisations to measure performance. Organisations will measure the performance of

• Individuals
• Groups
• Other organisations.

How big is the area being measured through Key Performance Indicators (KPIs)?

The area under review can be small; For example an employer may measure the performance of an employee or it may be large such as the economic performance of a country.

What situations are Key Performance Indicators (KPIs) used in?

There are a variety of situations in which KPIs are used and each situation will dictate the type of KPI and level of detail.

What is the point of Key Performance Indicators(KPIs)?

A KPI shows how well, an activity that is important to an organisation, is being performed. Often KPIs will be made up of percentages and numbers as this helps to measure how well the activity is being performed. For example a KPI may state that the organisation must achieve zero complaints or a 20 percent increase in profits

Typical KPI Scenarios

• Subcontractor Performance – an organisation may review the performance of a supplier providing them with a service so that they can assess how effective the service is. For example whether an item is fixed time or time taken to respond to a work request.

• Employee Performance – An employer may look at the number of days that an employee has been sick, the number of sales an employee has made or how much personal development they have undertaken

• Public Services Performance – the performance of public services such as schools, hospitals and the police will be measured and published in reports. These reports may include league table which rank the measurer depending on their performance e.g. schools may be ranked depending on how many students pass their exams or the police may be ranked depending on how many cases they solve.

• Economic Performance – Central banks across the world will review economic data such as inflation (price rises) and how well the economy has grown. This review will be used in deciding how to set things like national interest rates.

KPI Set Up and Measurement Process

The activities labelled as KPIs may be:

• Set by the person measuring the activity (measurer) without discussion with the person being measured (measuree), or
• They may be agreed during a meeting between the measurer and measuree.

To protect the quality of the KPI activity the measurer will often set quality measurers. These are designed to prevent the measuree from pursuing increased performance regardless of the effect on other areas such as health and safety, number of complaints or following legal requirements.

KPIs will often be linked to a system which rewards good performance and penalises under performance. The reward or penalty will depend on the sector that the KPI applies to.

Some KPIs may disregard poor performance under certain circumstances. These are known as dispensations and will often be situations where the measuree could not control their performance for example a fire stopped the measuree attending their appointment.

Following a KPI review the measurer and measuree may draw up an action plan to remedy under performance or to increase good performance.

Conclusion

Some poor performing KPIs may be disregarded under certain circumstances; these are known as dispensations and will often be situations where the measuree could not control their performance for example a fire stopped the measuree attending their appointment.

Following a KPI review the measurer and measuree may draw up an action plan to remedy under performance or to increase good performance.