Key Performance Indicators

Key performance indicator or KPI is a performance measure that is used to evaluate, manage and report the performance of a particular activity, process or organization. Typically performance is measured as efficiency and effectiveness (including cost effectiveness).

How To Define KPIs?

Any activity would be able to showcase benefit to the stakeholders only when it is mapped to the vision. Following is the approach to define KPI and eventually measure it.

The vision statement articulates what it is the service provider aims to achieve. Vision statements look at a desired state that will be achieved at some time in the future.

Mission statements articulate the basic purpose and values of the organization and its operation. Mission statements are more about how the organization will make its vision a reality.

Step 1: Define Vision

Organization’s vision defines the direction that an organization would take, the eventual future state that organization wishes to achieve.

Step 2: Define Mission

Mission defines the very basic purpose of the organization and it values. It articulates how the organization intends to realize its vision.

Step 3: Define Goals

Organization achieves the defined mission by defining the goals. Goals would be defined as short – term goal (typically for 6 months to 1 year or may be for a lesser period) and long term goals (typically 3 years or more)

Step 4: Define Objectives

Goals are further broken down into what can be termed as Objectives; the way these objectives are achieved would determine how effectively the goal is achieved.

Step 5: Define CSF (Critical Success Factors)

CSF defines the critical factor or activity that would determine the success of an objective.

Step 6: KPI (Key Performance Indicators)

KPIs are the indicators that are used to define the success of CSFs

Step 7: Metrics

The data points that are used to calculate the KPI. Metric has to be Specific, Measurable, Achievable, Realistic, Time bound.

Step 8: Measurement

Capturing the metrics

KPI Categories

KPIs can be categorised as:

• Actionable indicators: KPIs that are under organization’s control
• Directional indicators: KPIs that reflect improvement or degradation in performance
• Financial indicators: KPIs that reflects financial performance
• Input indicators: KPIs that measures amount of input resources (typically input for any process)
• Output indicators: KPI that measures output of a process
• Leading indicators:KPI that can predict the future outcome of a process
• Lagging indicators: KPI that represent the success or failure after an activity or process is executed
• Process indicators: KPIs that measures efficiency of a process
• Quantitative indicators: KPIs that can be represented as a number
• Qualitative indicators: KPIs that are qualitative in nature and cannot be presented as a number

3 Key Pitfalls To Avoid When Defining KPIs

@ Defining too many KPIs - Relevance and use of a KPI should be understood before defining the same

@ Defining too many metrics for a KPI

@ Having too many financial KPIs that highlights past-performance (a balance should be maintained by having KPIs that help in predicting future performance or provide an insight of the same)

My next series of posts would cover sample KPIs for key ITIL processes