What is KPI?

KPI is abbreviated as Key Performance Indicator. It is a set of quantifiable measurements which are used to observe a company’s or an organization’s overall performance in long term. For example, KPI can be appointments made, deals completed as well as number of calls made.

KPIs are very important in almost every organization as they make sure their employees are supporting and fulfilling their objectives or not. Below are the reasons which explain the importance of Key Importance Indicators:

~ Key performance indicators keep all the teams aligned. And make them move in one direction, whether it is performance of employee or measuring the success of your project.

~ KPIs also provide a realistic condition of your organization which include financial and risk factors.

~ Key Performance Indicators help see an organization at their failure as well as their success. As a result, a company knows if their strategies are working or not. Hence they know what ways are best for their company.

~ KPI is a very important tool as it provide an evidence of progress for the desired result achieved.

~ It makes all the necessary measurements which are intended which in a result makes the decision making better.

~ KPIs provide a detailed comparison which gives the changes in performance over time.

Types of KPIs:

* Financial KPIs:

Financial Key Performance Indicators play a very important role in an organization as their main focus is on the generated revenue and profit margins. It calculates or accounts all the expenses of the company including tax as well as interest payments. Furthermore, It also measures the remaining amount of revenue and profit for a certain period.

Let us take an example, suppose for a given industry there is 40% of standard net profit margin then a new business in that space must beat or at least meet that figure if they want to compete in the market. A profit based KPI is that which accounts for expenses and then calculates revenues which are associated with the production of goods.

A financial KPI which is also known as current ratio can be calculated when a company’s current assets are divided by company’s current debts. A company which is financially stable and healthy always has a handsome amount of cash in hand if they will face any financial obligations for a certain period of time for instance 1 year.

* Customer KPIs:

KPIs which are mainly focused on customers, have their center of attention on efficiency, satisfaction as well as retention of customers. Customer Lifetime Value is the term which shows total amount of money a customer will spend on a company’s products during their entire relationship. Furthermore, another term is Customer Acquisition Cost which shows the marketing cost and total sales by comparison, which are required to bring a new customer.

* Performance Metrics:

These metrics focus on to calculate all the functioning performances in an organization. A company can calculate the defective product percentage when number of defective products are divided by total products produced. First priority of a company should be to bring this percentage as low as possible.

A KPI report is created by following some general steps which are as follows:

~ By creating and introduction.

~ By defining KPIs clearly.

~ Using relevant charts, tables as well as graphs and presenting KPI.

~ At last, make some final edits to report if required and then distribute the reports.

CONCLUSION:

KPIs provide a very efficient way calculate and monitor the performance of a company by using different type of metrics. Managers are optimizing their business for long term success just by learning how to implement KPIs.