KPI or Key Performance Indicators provide information on performance. Sound indicators are useful to managers of that performance.
There is much confusion about key performance indicators.
Managers use indicators to assess how well activities meet agreed aims. Different enterprises have different sets of Performance Indicator s (PI), depending on their own performance requirements.
Key PIs are often financial. Many non-financial performance indicators usefully reflect operations in the organization.
The word 'key' quickly loses its meaning. All performance indicators tend to be 'key'. One can no longer distinguish between everyday operational PIs and the 'Key' PIs - the ones requiring more attention from managers.
There is a much more serious concern. Indiscriminate labelling of all performance indicators as ‘key’ eliminates other important distinctions among performance indicators. These distinctions reflect the accountabilities of different roles within the organization.
I recommend the term Manager Performance Indicator (MPI) for measures needed by all managers to assist in planning and controlling their respective operational activities.
Top managers need to have MPIs that give them an overview of the functioning of the firm or organization as a whole. These are Corporate Performance Indicators (CPI)
No need to labor the distinction between run-of-the-mill PI and Key PI, although there need be no big problem in doing so. MPIs are essential for planning and controlling operations all across the business.
Above the management, there is a need for another type of Performance Indicator altogether. The governors, or Non Executive Directors (NED), are primarily concerned with Beneficiary's Performance Indicators, or BPIs.
They also need indicators of compliance with corporate conduct policies, and relevant legislation.
The Beneficiary Performance Indicator (BPI) links the accountability of the CEO through the Chair of the governing body. This is the ultimate Key PI!
BPIs measure what the Intended Beneficiaries want to know about their organization.
'Turnover' is such an important company MPI that it surely ranks as a Key PI for managers. Nevertheless, it does not rank as a BPI - shareholders are generally not as interested in turnover as about profits, earnings, dividends... These are every company's BPIs and arguably far more important than any manager’s PI.
It is rare to acknowledge the distinction, between what Intended Beneficiaries want to know, and what managers need to know. Small wonder that many organizations, profit making businesses and NPOs alike, operate mainly from the perspective of the managers. Small wonder governance sometimes seems ineffectual in spite of vast volumes of legislative compliance requirements. The central task of ensuring delivery of satisfactory benefits to Intended Beneficiaries, that these NEDs should be performing - the only act they really must get right - is barely even recognized.
I have summarized these suggested forms of PI in the following diagram.
You may think I under value the managerial use of Key Performance Indicators. I assure you that I think managers throughout the organization should always be searching for the most cost effective way of improving the operations for which they are accountable.
Their managers need to be doing their best to hold them accountable by using the most relevant metrics available.
However, the emphasis should always be on accountability for results.
This should lead to guidance on improving achievement in line with corporate strategy. Using PIs is not about surveillance for its own sake.
The opposite danger to having too few PI is having too many PI. With the available information technology, metric overload is a real danger.
See Choose the Right Measures, Drive the Right Strategy by Dennis Campbell for a practical example to help you think about this.
The Accounts Commission for Scotland has produced another simple set of guidelines: The measures of success - Developing a balanced scorecard to measure performance.
If you would like to know more about the very popular Balanced Scorecard (BSC), framework check out the pioneering efforts of Kaplan and Norton in their book -
For collections of performance indicators to start you thinking about your own situation try these -
The KPI Institute is the global authority on PI research and education, providing through its publications and training courses insights on how to measure and learn with indicators.
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MPI or KPI