How to Develop KPI for your Department
What does KPI stand for?
It stands for Key Performance Indicators.
Every business has objectives or goals they aim to achieve at a set time limit, Key Performance Indicator is the values used to measure if these objectives were achieved. KPI is used to evaluate or track the performance of an organization. When a KPI measures the overall performance of a business, it’s a high-level KPI while KPIs that target performances at departmental levels are low-level KPIs.
Note that KPIs go beyond numbers especially when it has to do with customer experience or service. So the different types of KPIs should be applied to get a clear picture of the business performance.
Importance of Key Performance Indicators(KPIs)
- KPIs help you understand the health or performance of your business: the same way the doctor checks vital signs to know if a patient is healthy, KPIs help check the vital signs of your business to determine if it’s healthy. So the right KPIs should be used. The KPI should cover the procedures, employees, customers, and income.
- Apply and measure the right KPI, and yield rapid results.
- KPI measures the progress of a company over time- Key Performance Indicators can be set to monitor long-term business strategies. At the beginning of the year, a goal can be set, then monitored using the right indicators weekly or monthly.
- To make adjustments and stay on track – the indicators used to measure the progress will help you know if there are dangers to achieving the goal and to make the necessary adjustments so the objective of the organization is achieved. For example, when Leading indicators are used, you know when there are dangers to achieving a goal because leading indicators measure future results and possible happenings in the future.
- To analyze patterns over time-. It helps to know the employee performing exceptionally well, those on average performance, and those underperforming. Also, measuring the same KPI over some time can help you detect patterns in numbers. By following the pattern you can tell your slowest quarter and which is the busiest with much Cash flow.
Are KPI structures the same for every department?
Key Performance Indicators used to measure effectiveness in the logistics department cannot be used to measure effectiveness in the marketing department because their tasks are not the same even though both departments are aimed at achieving the set objectives of the organization. Remember that the first purpose of KPI is a communication bridge.
Most used Key Performance Indicators:
Economic indicators – This type of indicator works well for Accounting Departments, Finance Departments, and Treasury Departments. They can be used to measure income, cost-effectiveness ratio, and expenses.
Logistics indicators– deliveries, times of delivery, orders, and inventory rotation, are tracked with the Logistics indicators. They are suitable for warehouses and dispatch centers.
Financial indicators – using financial indicators capacity, solvency, indebtedness, and liquidity can be tracked. They can work with the Economic indicators in the Treasury, financial, and Accounting Departments.
Customer Service and Attention indicators– With this kind of indicator you track the services rendered to customers whether online or on-site. Keep track of regular clients and new clients, the orders, claims, etc. Departments like the sales and marketing departments could work well with this kind of inductor. Customer care can also track activities using this type of KPI.
Production Indicators – This is ideal for the production department. It helps evaluate the level of productivity and the effectiveness of the procedures used. It helps us also to know the quality or value of production materials.
Quality indicators – This in link with production indicators helps give managers insight. It measures production defects and their processes, service interruptions, quality of final products, and even deviations. When making decisions for industrial processes, managers can apply this type of Key Performance Indicator.
How to develop KPI for your Department
First, we must understand what makes a KPI effective. The first thing to remember is that a Key Performance Indicator is a form of communication so it must be precise, clear, and relevant to your department. Something that can be acted upon practically.
- Write a clear objective for your KPI: this is a very important part of developing a KPI. A Key Performance Indicator should be connected with the main business objective. KPI should strategically express what your organization wants to achieve. People should easily understand what your business is about just by looking at the KPI.
- Share KPI with stakeholders – your employees and other stakeholders cannot work with you to achieve the objectives written if they don’t know it or understand them. you must communicate your KPI the right way so they can see the direction your organization is headed for. You have to explain to them why you are measuring not just what you are measuring. After sharing you must listen to the stakeholders and employees, that’s how you can find out where the objectives are ambiguous and need more clarity because KPIs aren’t always faultless. While listening you might get ideas on how to improve the KPI.
- Review your KPI to help ensure they improve performance – what’s the essence of KPI if it’s not improving the business? You have to constantly measure to make sure they are useful. If used properly, KPI is a good tool to make proper business decisions and improve business outcomes. Note that not all KPIs can be achieved because they are not able to track the business goals. So it’s by monitoring them you will know when to adjust or change them entirely.
- Make sure your KPI is actionable – Develop a target that covers both short-term and long-term achievements. If a goal is set for a time limit that is far like a fiscal year, you should plan how to get there. For example, wanting to produce 100 cars by the end of the fiscal year, you will have to set weekly or monthly targets to get there. By so doing you can know when to make adjustments if necessary.
- Evolve your KPI to meet changing needs of the business – when KPIs are not updated regularly, they lose relevance. If for example, your organization adds more outlets and you don’t update your KPI, your department will continue chasing targets that do not capture the current direction. Reviewing your KPI helps you discover more efficient ways to achieve the goal.
KPIs need constant change, evolving, and updating if you will adapt to the changing world or society. To remain static is to lose relevance.
These may look stressful but after constant practice and results, it will be much easier in the future.
KPIs have their limits. It must be useful to be effective but when it’s not, don’t be sentimental about changing them and set up new ones that aid your business objectives.
KPIs can help build better teamwork:
- It unlocked employee engagement-it helps everyone go in the same direction. All the departments have their own goals and objectives but KPI helps bring it all together so that everyone sees they are all working to achieve the key goal of the business.
- It connects the employee to the purpose of the organization – it helps communicate the strategic plans of the organization. Disengagement and frustration take over when people don’t understand or forget why are working in the first place.
KPIs are very relevant but the core issue is always the communication problem. To effectively use KPI, it requires your effort, time, and for your employees to buy into it and work to achieve it.