Key Performance Indicators (KPIs)

Key Performance Indicators (KPI) are financial and non-financial metrics used to measure key business processes, which ultimately reflect strategic performance of an organization. KPIs are used in business intelligence to assess the present state of the business and to prescribe a course of action. The act of monitoring KPIs in real-time is known as “business activity monitoring.”

KPIs are frequently used to “value” difficult-to-measure activities such as the benefits of leadership development, engagement, service, and satisfaction. KPIs are typically tied to an organization’s strategy (as exemplified through techniques such as the Balanced Scorecard) and key business processes. KPIs differ depending on the nature of the organization and the organization’s strategy. They help an organization measure performance by providing ongoing and regular monitoring of the key business processes.

Key performance indicators not directly supporting a key business process only cause an organization to expend energy and resources on operational initiatives that may be irrelevant to the organization’s strategic direction. A KPI consists of lower- and upper-specification limits. Oftentimes the lower specification limit is set at 0 (for something like a defect rate) or the upper specification limit is set at 100 (for something like customer satisfaction).

KPIs should not be confused with a Critical Success Factor. A critical success factor is something that needs to be in place – a condition for success – to achieve the objective; for example, a critical success factor for a restaurant trying to increase the number of meals served is an adequate number of tables.

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