Key Performance Indicators
From the name itself: - Indicator: something (a number or a boolean) that indicates the state of something else - Performance Indicator: measuring something within a project - Key Performance Indicator: main measurements that should be tracked within a project to help ensure its success
It’s different from Objectives and Key Results (OKRs)! They are related though.
Advantages of using KPIs: - What gets measured (usually) gets improved - Helps with alignment - Helps with modelling of relationships - Can be an early warning system
Disadvantages with KPIs: - Can ignore longterm views - May lead to unethical behaviours - Can optimise things that aren’t priority
For example: when it comes to people who want to lose weight, those who track calorie consumption usually lose more weight (around twice as much) than people who don’t.
There is no magical formula to pick KPIs! Different companies, even if they have the same goals or are in similar markets, will probably need different KPIs.
- Purpose based (not off-the-shelf KPIs)
- Implementation checklist
- Calculation spec
- RACI to pick roles
- Responsible: individual contributors responsible for achieving the outcome
- Accountable: people responsible for the result
- Consulted: people who provide consultations and advice, often experts
- Informed: people kept informed
Purpose-based KPI definition
KPIs need to describe the system “as is”, which requires understanding of the system (retail is different from services, for example; or luxury brands compared to cost-effective ones).
Business objetives might need to know the initial state of the business. This means the KPIs come first and OKR come later.
Types of KPIs
Activity leads to results, that lead to outcomes.
- Activity: what you have under control
- Result: when you do some activity, you can expect results of the activity
- Outcome: what you don’t have control under, or what changes you will make in the world
You want outcomes, which are the hardest to get. Said that, only outcome-based KPIs when you can reasonably control your outcomes.
If given outcome is so uncertain KPis aren’t actionable pick result-based ones. For example: no marketing can guarantee a given amount of leads. They can act other things, such as visitors on the website or contact to potential leads.
If it is hard to guarantee even results, KPIs may be based on activity. For example: in chess, you can’t control your ELO rating. You can control however how many times you play every day as to hope you improve your rating.
KPIs can also support each other, so having many KPIs, and having some depending on the other, regardless of type, may help improving the company. In the end, having many measures, each one supporting many objectives, is probably the best strategy.
- How often will you collect it?
- How will you collect it?
- Where will you collect it?
- How will we interpret and react to it?
Some BI tools: - Tableau - Power BI
Never forget: just because you see a chart in a BI software, it doesn’t mean you should manage your company based solely on that chart.
- Frequency of update
- System to update
- Algorithm for update (formula)
- Visualisation method
Regarding visualisation: that’s probably one of the most important parts. Picking a good chart; picking good colours; thinking about how to treat missing data, changes on the KPI defitions, or exceptions will help you understand your situation and act accordingly.
Some lessons learned along the way
Useful KPIs are usually tricky to calculate.
There might be incentives not to calculate KPIs accurately, or not unified.
There might be low trust in data. There might be huge delays when collecting data.
When “garbage in, garbage out” happens, using KPIs may not help.
Some KPI examples
- Outcome: deals $ per year
- Results: contracts signed per quarter
- Activity: calls per day
- Outcome: EBITDA $ per year
- Resutls: budget utilisation %
- Activity: marketing $ spent per year
- Outcome: position in the market
- Result: net promotor score
- Activity: features implemented % against the roadmap