What are KPIs? What types of KPIs are there? How to create effective KPIs?
KPI is a familiar phrase, often encountered every month, every quarter or periodically, when a superior assigns a task or task. Each department in the company will have different KPIs to objectively evaluate the performance of each individual or department. In this article, let's find out more with Coffee HR What are KPIs? and how to set the most effective KPI!
What are KPIs?
KPI The abbreviation of the English phrase "Key Performance Indicator" is a tool to measure and evaluate work productivity, expressed through data, ratios or quantitative indicators. . This is an indicator that reflects the performance of each individual, department, organization or business.
What are KPIs?
Depending on the characteristics of the organization, the KPI is divided into many different levels. Understand What are KPIs? will help individuals and departments focus on the initial set of goals to complete on time. Running KPI is the basis to help employees ensure the correct implementation of responsibilities and obligations, contributing to the evaluation becoming specific, transparent and fair.
KPI classification
Depending on the characteristics of each company, the setting is monthly, quarterly or periodically What are KPIs? Not only helps the management and superiors track the completion of work of employees, but besides, each individual will determine the goal to be completed. KPIs KPIs are divided into two categories: strategic KPIs and tactical KPIs.
KPI belongs to strategy
Strategic KPIs are targets set by senior leaders of the company, directly affecting the business situation of enterprises such as sales, profits, market share, and invested capital. This index is associated with the company's strategic goals in the short and long term.
For example: In 2022, company V aims to increase its market share in the consumer goods industry in Vietnam to 15%. Or if the market share of 15% is not achieved, current investors will withdraw capital from V company, affecting the operation of the group in the future. This requires each department and organization to run KPI according to the set plan.
Having a narrower category than strategic KPIs, tactical KPIs associated with specific activities and tasks to help the company achieve strategic KPIs or strategic goals. Therefore, KPIs belongs to tactics that are introduced from lower levels in the company such as directors, department heads, department heads, and then deployed to groups, or individual employees.
For example: The Marketing Manager is responsible for asking the social media manager to release this month What are KPIs?. Specifically, the company's TikTok channel until the end of May 2022 needs to run KPIs to reach the milestone of 10K followers. Although this index does not have much impact on the company's sales, it contributes to increasing awareness and expanding reach to customers. At the same time, tactical KPIs also measure the development of communication channels in each period.
Classification of KPIs: Tactical KPIs and Strategic KPIs
Benefits of KPIs for businesses
After understanding What are KPIs?Every individual and team will know that KPI plays an extremely important role in the development of an entire business, affecting the results of the implementation of the set goals.
Understanding What are KPIs? and running KPI effectively will bring many outstanding advantages such as:
Give employees an overview of current and long-term work goals, thereby determining a roadmap, dividing tasks according to their importance.
Measure the performance of each department and individual against the initial targets set
The Board of Directors can update the status and working progress of each department
Set a reasonable salary and bonus system based on the achieved KPI results to motivate employees
Shaping and adjusting the development strategy of the business after evaluating KPI results
4 Elements that make up an effective KPI
KPIs are used to evaluate work performance, but running KPIs is not always the most effective. That's why, besides understanding What does KPI mean?, we also have to define the criteria to create a good KPI. In essence, a good KPI needs to meet the following characteristics:
Align with strategic goals: The set KPIs need to be associated with specific short-term and long-term business goals, thereby determining the contribution role of each position to the overall development roadmap of the whole company.
Right focus: In other words, instead of spreading out on too many targets, we only need to focus on priority and strategic goals. If the index part has a weight less than 1%, it should be considered to give priority to other indicators.
Reasonable with duties and functions: This criterion is understood that each department will have its own role, so when setting KPI, it is necessary to ensure that it is within the functional scope of that individual or department.
As mentioned in section 3 – Elements to create a good KPI, the SMART tool stands for the words,: Specific (Specific) – USAeasurable – Achievable – CHEAPealistics (Realistic) – BILLIONime bound (Detailed deadline). These are considered as criteria to evaluate whether KPIs are capable of meeting the manager's purposes.
Those who have the authority to set KPIs are required to ensure the mission, consistency of the organization's strategy, and the consistency of the overall governance system. Besides capturing What are KPIs? In each stage, businesses need to evaluate whether their KPIs have all the properties in the SMART element or not.
S – Specific – Specific: Let employees, subordinates know this month What are KPIs?, what items need to be completed, the leadership and superiors need to clearly define the targets to be achieved for each task. The set KPI must be specific and clear to bring value and results.
M – Measurable – Measurable: You cannot run KPIs while your superiors cannot evaluate the performance of the work you are doing. KPIs only bring value when clearly demonstrated through reports or statistics. The software, the application is the optimal choice to measure the indicators in the evaluation of KPIs.
A – Achievable – Attainable: No one is able to answer this month's question What are KPIs? if they're not in the deployable and accountable department. The given KPIs must be in the condition that they are capable of performing, in accordance with the situation of human resources and resources.
R – Realistics – Reality: In order for employees to run KPI effectively, it is important that you consider external factors, should not set KPIs for employees based on assumptions or beliefs. If not, it is likely that the KPI is unusable, or cannot be fulfilled and reflects the true value of the company.
T – Time-bound – Detailed deadlines: Fabricate What are KPIs? will always be accompanied by a specific timeline for completing the work. This helps the recipient of the job to manage their time, arrange the tasks to run the KPI effectively, and ensure the progress of the department.
The process of setting effective KPIs for businesses, in other words, is the answer to the question "What are KPIs? Business?" from time to time must be based on the goals of the organization, those responsible for participation. From there, businesses can come up with a suitable roadmap, making it easier to run KPIs.
The 5 steps to build KPIs are:
Identify the person/department to develop KPI
Evaluate KPIs based on SMART criteria
Evaluate KPI completion
Adjust and optimize KPI reasonably
Review between KPI and salary
Here are the details of the effective KPI setting process that businesses can refer to:
Identify the person/department to develop KPI
Usually, the person in charge of this role will be the Head of the department/department/department because they are the ones who directly manage and best understand the duties for each position and title of the department. In addition, the Human Resources Department, senior management team who know the company's strategic plans and goals can also assign KPIs to other departments/departments.
Evaluate KPIs based on SMART criteria
This screening helps the set of KPIs, after being built, to bring value and efficiency, ensuring that superiors can monitor and employees know the tasks to be performed and the deadline for completion.
Evaluate KPI completion
After the due date, the manager will receive a summary of the completion results of each individual and department and conduct a comprehensive comparison and evaluation. This helps superiors to consider the work efficiency, the ability to run KPI of the person assigned the responsibility to perform.
Adjust and optimize KPI reasonably
KPIs need to be tracked and adjusted over time by not necessarily this month What are KPIs? Next month will be the same. KPI depends on the strategic goals of the company from time to time. If the KPI is found to be unreasonable or too high compared to the ability to perform, it must be adjusted for the next month or period.
Review between KPI and salary
Although the management set What are KPIs? Anyway, don't forget to consider the bonus when completing KPI, because this is a factor that contributes to boosting employee morale and productivity. The evaluation should take place at the end of each KPI period, showing objectivity and comprehensiveness by collecting opinions from superiors, colleagues, customers and the auditee himself.
Compare OKRs and KPIs. Which indicator should I choose?
Reasons why businesses build ineffective KPIs
Although most businesses already understand the nature of What are KPIs?However, there are still many cases where they are struggling to find a set of KPIs that are suitable for their business model, thereby causing employees to fall into the state of running KPIs that are not effective, seriously affecting their employees. evolution.
Determining What is KPI in business? for each moment needs to depend on many factors. If only one of the SMART criteria cannot be met, the process of building KPIs for businesses will face many difficulties.
There are many factors that affect businesses not building KPIs, here are some of the reasons:
The goals set out are general, not specific, clear
The process of building KPI is complicated and unscientific
Lack of qualified managers and team leaders to monitor, evaluate and report in a timely manner
Failure to closely monitor and understand the actual capacity of employees
Deployment of KPI goals is not agreed upon by all employees
The KPI target system lacks practicality and is too far from reality
Notes when building KPIs
Before determining this month, this quarter What are KPIs? The construction of KPI requires businesses to create some context standards of the indicator. This is intended to help new implementers understand the meaning of each KPI, thereby charting an effective KPI roadmap. Indicator names and metrics often have an implicit comparison (benchmark) with a certain milestone, be it industry average, annual growth, etc.
Besides, KPIs are often considered at the executive level, so managers should not track all performance metrics in more than one place. Specifically, at the strategic level, businesses should only track and measure the indicators that have the greatest impact on the company instead of focusing on small, detailed indicators in each department.
Measure effective KPIs
How to measure effective KPIs?
One way (One of the simplest) to measure your KPI performance is to use SMART frame.
Your goal has specifically Are not?
You can measure Are you making progress toward (change/change in performance) your goal?
Target have achieved? in fact? (Is the goal actually achievable?)
Relevant goals How about your organization? (How does the goal impact/affect the organization/work in your organization?
Time frame time What is to achieve this goal? What is the timeframe to achieve the goals?
An important thing to remember is that KPIs are designed around the business situation of the business and are developed to help businesses achieve their goals. Therefore, in order to design clear and easily measurable KPIs, the following steps can be followed.
Write a clear goal for the KPI
Setting goals is always a top priority for every organization, especially businesses. So, your KPIs must be linked to a key business goal. Do not adjust the KPI of a business goal that the business is working on, to work towards a goal without affecting the organization. Besides, KPI also needs to be more than an arbitrary number and represent the strategic goals of the organization. Most importantly, KPIs must tell the story of your company.
Review KPIs on a consistent basis
It is essential for businesses to review their KPIs consistently. KPIs can be looked at from two perspectives: Your Progress against the KPIs and Your Progress to determine the KPI's effectiveness. If no progress is being made, your organization's KPI goals may not have been achieved and it's time to reevaluate.
Create actionable KPIs
Follow these 5 steps to create actionable KPIs for any organization.
Consider business goals: Remember, KPIs are not static! Your KPIs will grow as your business goals evolve.
Analyze your current performance: Are you setting achievable goals? Analyzing your performance is essential to understanding (grabbing) your areas of success and areas for improvement.
Set short-term and long-term KPI goals: Set your long-term goals (whether it's quarterly or yearly) and then work backwards to identify the milestones (or short-term goals) you need to achieve along the way ( is indispensable). This way, you can continually re-evaluate and or change course as you work toward your larger goals.
Review goals with your team: Warren Buffett once said, "If you want to go fast, go alone; if you want to go far, go together!" It is important that everyone is well informed so that you are all working towards the same end goal.
Review your progress and make adjustments: Make it a habit to check your progress. KPIs are not set and left there. Regularly check the performance and relevance of your KPIs. And once you make it a habit, it gets easier
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