Suggested Yardsticks to Serve As Performance Measures

Posted by SharonEvans on June 30th, 2013

 Key performance indicators are one of the latest inclusions in the portfolio of every organization and represent a set of tools that are meant to identify the problem which might be hindering growth of the company. Subsequently, solutions are sought to overcome the obstacle so that the organization can progress on the desired path. KPI is referred to by many alternative terms, performance measures and metrics being some of the most common and can be classified in a number of different ways. However, the onus is on the management to identify some which match its set-up the best.

One of the simplest yet effective ways of categorizing key performance indicators entails labeling them as financial or non-financial wherein dollars serve as units for everything that comes under financial segment. Aspects like revenue, cost, profit and return on investment can be measured in terms of dollars that come in or are spent and hence come under the financial umbrella. On the other hand, performance measures like attitude, customer satisfaction and delivery timeframe that cannot be given a firm dollar-value are labeled as being non-financial.

It is not unheard of to set key performance indicators as being qualitative or quantitative but given its requirements this system has turned out to be theoretical and has been found to have less practical value. Whether the data is qualitative or quantitative can be adjudged by assigning it numbers – something that can be measured numerically belongs to the latter and one that cannot be gauged in any numerical value is the former. Quantitative performance measures can be further subdivided as being continuous or discrete wherein the former is expressed in decimals and the latter in whole numbers.

The term ‘key’ in the phrase key performance indicators refers to something that needs to be undertaken on a priority and if ignored could be instrumental in slowing down growth. Key performance measures are also linked to current strategies and daily affairs, meaning simply monitoring these on a regular basis is sufficient to keep the business going on the path of progress. ‘Non-key’ refers to all those areas that are not tagged as key and hence can be put on hold for the time being. These also require attention but not immediately and could be subjected to procrastination.

Some of the terminology included under key performance indicators can be used interchangeably like measure, indicator and metric. But there are distinct differences between them, one of them being a direct derivative of their inherent nature. When you monitor a particular cycle with a stop-watch the exact time that you derive is a measure but whether it is fast or slow is an indicator. Metrics are forms of performance measures that reveal the complete story, meaning when the cycle began, why did it begin, the moment it came to a stop and its consequences.

Performance measures have also been found to follow various types of hierarchies amongst which the most important is the one that explains the cause-effect mechanism. This is one of the best key performance indicators that monitors the progress of the organization and determines planning and implementation of appropriate strategies. At the moment the particular process is being implemented, the numbers that are received are referred to as being operational. Series of such numbers in a sequence forms a hierarchy and the number of layers could vary as per the organization.

Key performance indicators are inclusive of many types of data and these can be channeled to achieve growth only when they are sorted out in accordance with some system. Understanding various ways in which performance measures can be classified helps to utilize the knowledge optimally and derive maximum benefits from the concept.