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What is a KPI or key performance indicator?

Erfan
KPI

The Key Performance Indicator, also known as the KPI, is a measurable variable that shows how close a company or startup is to its key goals. This index evaluates the amount of important and basic functions of the company.

The KPI index is for all industries, organizations, and even personal work. This index should be in specific periods.

Now that we know what KPI stands for, it will be useful to know how it works. Organizations often do not understand the concept of KPI and, after using it, do not see the desired result. One of the most important aspects of KPIs is that the concept is based on some connection. For this reason, they follow the rules and principles of communication. In the principles of communication, each type of dependence is formed as a loop, and both parties, based on mutual knowledge, take the next step.

Therefore, to formulate a KPI strategy successfully, the goals of the organization or company must first be identified. Then carefully plan to achieve these goals. This process should be done consecutively at a specific time and in the form of a loop. Analysts review the result of the organization’s performance.

Why are KPIs important?

Companies can not have any good feedback on performing without measuring and examining key performance indicators. After a while, they may feel that they have progressed in their work, but they can not accurately determine the context of success or measure it by a suitable criterion.

Specific goals can be identified using KPIs, and appropriate strategies for evaluating those goals can be identified. It also allows you to get and save a history of your business performance. Briefly, the importance of KPI is four aspects:

1- KPIs strengthen the morale of employees

2. They support and influence business goals

3. KPIs promote personal growth

4. They are very important for performance management

5- KPI strengthens the morale of employees. A KPI review will go a long way in identifying hardworking employees in the organization. Therefore, by observing the growth of a company based on the KPI index, it is possible to examine individual reasons in detail and identify talented people who have played a greater role in the company’s growth with the organization. Encouraging talented people strengthens the hardworking spirit of individuals and employees.

6- KPI is very important for the organization’s business goals because it puts these goals at the forefront of decisions. KPI ensures that the goals of the organization are always at the forefront.

7- KPI causes individual growth in the organization. The KPI also provides a good environment for people to learn and improve. KPI makes each person accountable for their performance to be an incentive for the good performance of employees. As you know, the individual growth of employees will eventually lead to the collective growth of the organization.

8. KPI is ultimately important for performance management. Finally, by examining each of the factors and feedback on the organization’s results, it is the overall performance of the organization that is managed. Transparency of individual performance in the organization through KPI causes the organization’s overall performance to be identified and analyzed.

What information does the KPI show us?

Identifies actions that need to be taken to help make better decisions.

Balances leading and backward indicators.

Shows the amount of performance change over time.

Provides objective evidence of progress to achieve the desired results.

Displays efficiency, effectiveness, quality, duration, behavior, project efficiency, individual efficiency, and resource utilization.

Types of key performance indicators

Project: Responsible for the delivery status of the project and the progress of its strengths.

Process: Focuses on the efficiency and quality of the processes used to produce the output.

Inputs: Provides information on the amount, type, and quality of resources consumed.

Outputs: Displays the amount of work done and what is generated.

Consequences: Focuses on achievements or their effects.

How to build a KPI?

Here are five key steps in building a measurable KPI. Here are five steps you can take to begin the process of preparation for mediation:

Step 1: Define the goals

Before measuring website traffic, it’s best to determine the purpose of building a website. It may seem unnecessary to do this, but websites are usually built for two main purposes:

1. sales increase

2. Reduce the cost of customer support

To better understand these two goals, we will give examples of these two:

Increase sales

These sites increase user engagement and thus product sales. These sites may not sell their products directly through the website, but they increase brand recognition and engagement. As a result, people know more about the brand, and sales of their products increase.

Price reduction

These sites allow you to publish information and respond online to reduce the cost of customer support. Writing an information page will certainly cost less than hiring a few experts to support customers. Therefore, having a clear understanding of the purpose of launching a website helps measure the website’s activity and improve its performance.

Measuring a set of metrics over time will help determine the progress of different site sections. Since no analytical report can give you complete information about how close you are to your goals, you need to monitor some metrics regularly. To clarify this issue, consider the following two examples to explain the steps of building a key performance indicator based on these two examples:

Example A: Increase sales

Example B: Reduce the cost of customer support

Step 2: Define Success Factors or CSF

Success factors are some key activities that a company, organization, or even an individual must focus on to achieve success. Success factors are conditions that measure the extent to which a business achieves its goals over different periods.

A success factor, or CFS, starts with a practical task and then identifies the things. These tasks include:

CSFs combines two elements: measurable activities and specific periods

So with that said, the second step in building a KPI is to define success factors for Examples A and B as follows:

Example A: Increase leads by 25% over 12 months

Example B: Reduce support center calls by 20% over 12 months

Step 3: Build KPIs based on success factors

Not all KPI success factors are necessary. Success factors are essential elements for the success of a strategy. While KPIs are computational metrics that quantify success factors, KPIs are computations of metrics determined in later steps. The key performance indicator is in the third stage, but its calculations are fifth.

In the next two steps, you will find many criteria and metrics to measure. But only a few of these metrics provide us with useful information about website performance.

Only metrics that are KPIs can provide us with useful information. Also, remember that not all KPIs are metric, but not all metrics are KPIs.

So with that said, the third step in building a KPI is to build a KPI based on success factors for Examples A and B:

KPI Example A: Percentage of visitors who have become customers in the last month.

KPI Example B: Customer service center call rate compared to last month

Now that the KPIs have been identified, we need to identify the building blocks of these key performance indicators. Example A is the percentage of visitors who have become customers. Therefore, we must first find these criteria and calculations to determine them. In Example B, we need to meet the call center and online customer support criteria.

Step 4: Collect the criteria

Criteria are a set of raw numbers from which useful information can be extracted. If these criteria are related, they can extract more useful information. Criteria are the lowest level of detail in analytics reports for websites, corporate databases, and call center reports. Criteria must first be collected to determine the metrics in the fifth step. These criteria are equally valid, for example, A and B:

Step 5: Calculate metrics based on criteria

Metrics are criteria calculations and are always as rates, averages, ratios, or percentages. We can analyze the criteria differently, so we have infinite metrics. As mentioned in step three, all KPIs are metrics, but not all metrics are KPIs.

For a metric to become a KPI, it must provide us with useful information about the site’s performance. Consider the two metrics we examined in Examples A and B:

Example A

KPI is an example of a percentage of a visitor-to-customer conversion. So if the rate changes from 8% to 10%, it means that our website has a good conversion rate. It means that sales will also increase in the future.

Example B

KPI Example B is the ratio of online customer service calls to last month’s calls. If this ratio decreases, more services will be provided to customers through online support. It means your site will perform well, and support costs will be reduced.

Finally, web analytics reports or any other report alone do not provide useful information. But understanding business goals and KPIs gives us a good report on business performance. These reports indicate whether our results are close enough to our goals or whether a series of changes should be in performance.

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