It’s no secret that the U.S. economy (and world economy for that matter) is in trouble. Corporate bailouts, stimulus packages, the “D” word…all make for an interesting business climate.
But many companies aren’t in trouble at all. During the bubble, it seemed like everyone was able to be successful and make money. But the old saying about a rising tide lifting all boats seems to have an opposite effect during an economic downturn: An ebbing tide drops each boat individually. The smartest organizations are turning to business intelligence to give them a complete view of their business, and help make every decision count.
Gone are the days of poor decision making and “gut feel” decisions. In today’s business climate, every decision must be scrutinized and backed up with facts…or your ship just might start to sink. In this post we’ll explore some best practices around defining Key Performance Indicators (KPIs)
As defined on Wikipedia, KPIs are:
financial and non-financial measures or metrics used to help an organization define and evaluate how successful it is, typically in terms of making progress towards its long-term organizational goals
When defining a KPI for your organization, the best approach is to define metrics that are “SMART”.
- Specific
- Measurable
- Actionable
- Relevant
- Timely
Let’s take a look at each of these in detail.
Specific - It has to be clear what exactly the KPI measures. There has to be one widely-accepted definition of the KPI to make sure different people interpret it the same way and come to the same and correct conclusion which they can act on.
Measurable – The KPI has to be measurable to define a standard, budget or norm, making it possible to compare the actual value to a budget or forecast value.
Actionable – Every KPI has to be measurable to define a standard value for it, and it is equally important that this norm is actually achievable. Nothing is more discouraging than striving for a goal that you cannot possibly attain.
Relevant – The KPI must give insight into the performance of the organization’s strategy and attainment of their goals. If a KPI is not measuring a part of the strategy that affects the organizations’ performance, it is irrelevant and useless.
Time-phased – It is important to express the value of the KPI in time. Every KPI only has a meaning if there is a time dimension in which it is realized.
As you develop metrics for your organization, understand that a well-defined KPI should clearly state how the employee or organization needs to perform to be successful. Taking all of these attributes into account, an extreme example of a poorly-defined KPI would be:
“Sell more widgets”
while a well-defined KPI would be:
“Increase by 15% the year-on-year widget sales to corporate accounts by December 31, 2009″
By understanding your organizational goals and defining your KPIs properly, you will ride out the tide and be well on your way to making your organization SMARTer.
Thursday, July 16, 2009
Ambient BI, Strategy & Execution