Full-Form of KPI (Key Performance Indicator)
The full form of KPI stands for key performance indicators. These are used to measure the efficiency of an organization with respect to the way it has been achieving all its long-term and short-term goals, and companies use this performance indicator from time to time to evaluate the effectiveness of all its decisions in business operations.
Importance
- Key performance indicators help an entity, its departments, management, and teams instantly react to such events that can impact its business operations. This is also taken into use for the purpose of achieving long term and short term strategic goals.
- Key performance indicators help an organization focus on a mutual goal and even to ensure that the same is appropriately aligned with the predetermined goals and objectives. Therefore, it is very substantial for organizations to evaluate what exactly needs to be measured.
Types of KPI
- Quantitative: Quantitative indicators are presented along with a number.
- Qualitative: Qualitative indicators are represented similarly to a number.
- Leading: Leading indicators can help in forecasting the results of a process.
- Lagging: Lagging indicators that can display the failure or success post hoc.
- Input: Input indicators can measure the total amount of resources that are consumed in the process of deriving results.
- Process: Process indicators can indicate the productivity of the efficiency of the particular process.
- Output: Output indicators can reflect the results arising out of a particular activity.
- Practical: Practical indicators which may interface with the processes of the entity.
- Directional: Directional indicators that specify if the company is performing better.
- Actionable: Actionable indicators are very much in the company’s control for resulting in changes.
- Financial: Financial indicators are used for the purpose of performance measurement.
How to find Key Performance Indicators?
A company can find its key performance indicators by establishing clear goals and objectives, outlining the criteria for achieving success, collecting the data, building the key performance indicator formula, and presenting its KPI.
How Do You Measure?
- Web analytics is the most commonly used tool for measuring key performance indicators. Google Analytics can track all types of data. Google Analytics can track website performance, new customers, sales patterns, etc.
- It can also be measured through the Snapshot card. This card can display approximately 5 metrics. A snapshot card is considered one of the best ways to get quick access to all the information that it actually needs.
- It can state the revenue required in the ongoing period, the prediction for revenue for a month, how the company is performing against its targets, last month’s performance, and the previous year’s performance for the same time frame.
- Another important tool is the report card. The company can review its report card from time to time to measure its key performance indicators. The report card will help the company in assessing various important measures like ROI, productivity, etc.
Examples
#1 – Project Manager Key Performance Indicators
Project managers use these for evaluating performance with respect to a particular project.
#2 – Financial Performance
It is used for evaluating the financial well being of a particular project and overall organization.
#3 – Supply Chain & Operational Performance
This is used to evaluate the efficiency of the supply chain mechanisms.
#4 – Customer Insights & Marketing
This is used by organizations to learn about customer insights and marketing.
#5 – Information Technology Operations & Execution of Project
It is used for evaluating the performance of IT operations and the execution of a particular project too.
How to Create & Develop KPI?
While creating and developing a key performance indicator, companies must necessarily consider how KPI can relate to a particular business objective. This is not the same for all departments and organizations. key performance indicators must be customized as per the situation of a business and its requirements. It must be developed in a manner that helps an organization achieve all its long term and short term goals and objectives.
The following steps must be used while creating a key performance indicator for a company, its departments, teams, processes, and management:
- A clear objective must be written for each key performance indicator.
- The objectives must be shared with all the company investors, such as equity holders, preferential shareholders, creditors, suppliers, vendors, customers, employees, etc.
- These objectives must be reviewed from time to time.
- It must be made sure that these objectives are actionable.
- These objectives must be evolved from time to time to let them adjust to an organization’s ever-changing needs.
- The attainability of the goals and objectives must be checked from time to time.
- The objectives must be redefined and updated as and when required.
Difference Between KPI and KRI
- It stands for key performance indicators, while KRI stands for key risk indicators.
- It helps in measuring business performance while KRI helps in the quantification of risks.
- This is used by the organization to monitor its performance while KRI is used for monitoring the risks faced by an organization, along with the implications of the same on the performance of a business concern.
- Key performance indicators help an organization in learning how well its operations are responding to strategic plans while KRI helps an organization in identifying the present and potential risks and the implications of not being able to deliver good results in the nearing time.
Conclusion
Thus, as discussed, companies, departments, management, and team used KPI to assess the effectiveness of the business operations. Key performance indicators must not be confused with key risk indicators. These two terms are pole apart from each other. Key performance indicators are also used for the achievement of the organization’s goals and objectives. It helps an organization focus on its goals and make sure that the same is getting fulfilled in a predetermined time period.
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This has been a guide to the Full Form of KPI – Key Performance Indicators. Here we discuss how to find KPIs, How do you measure and how to create & develop KPI along with importance, types, examples, and differences between KPI and KRI. You may refer to the following articles to learn more about finance –
