Definition: Key Performance Indicator (KPI) refers to monetary and non-monetary measures that an organization employ to define and measure the progress towards achievement of long-term goals of the organization.
These factors are fixed and predetermined in nature and comprise more meaning if it is compared with the information. KPI varies from organization to organization such as:
- The percentage of earnings that arise from return customers is the KPI of a business.
- The graduation rate of Students is the KPI of a University or College.
- The percentage of customer calls answered in a day is the KPI of a Customer Service Department of the Telecom Company.
After analysing the mission of the company, identifying the stakeholders and setting up goals, it requires a performance measurement indicator to estimate success in meeting the strategic objectives of the organization or any activity such as project, product or program, etc., which is called as Key Performance Indicator (KPI).
It is used by the organizations at various levels to assess the progress of the organization in fulfilling the targets, wherein the purpose of High-level KPI is to check the overall performance of the entity, and the low-level KPI stresses on analysing the growth in the completion of departmental objectives.
Critical Success Factor
Key Performance Indicator is the result of Critical Succes Factors (CSF) of the organization which are helpful in determining what a firm should do, to achieve its ultimate objective. Basically, a KPI is linked to the CSF, in fact, it is also possible that a CSF has more than one KPI.
In business terminology, the targets of Key Performance Indicator are called as thresholds. These thresholds are set after performing an in-depth industry analysis. So, they must be SMART, i.e. Specific, Measurable, Attainable, Relevant and Time-Bound.
To achieve the performance measurement of the business properly, KPI is chosen and designed in such a way that CSF is conveyed, when KPI achieves its threshold. Further, in exchange, CSF need to be designed and created such that when CSF’s are met, it results in the delivery of organization’s vision.
When we combine the objectives, CSF and KPI, it delivers the company’s strategic goal, by dividing the vision of the organization with a number of measurable targets.
To achieve the strategic intent of the organization, the first and foremost step is to establish KPI in the right direction. However, its real gain can be realized only when it is implemented in the right manner and perceiving the KPI’s relationship with CSF and objectives which are relevant in this regard.
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