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10 Conditions that a Good KPI Must Meet

To be able to steer properly as a financial, you have to keep an eye on the right indicators. However, the introduction of KPIs (key performance indicators) doesn't always work out well. Anyone who uses the wrong numbers may wrongly get the feeling that things are going well, with all the associated consequences. But how do you select the best KPIs, what are the pitfalls? What does a good KPI have to meet and what does that yield?

Is the company on track to meet the targets? A useful way to find out is to monitor the KPIs: critical performance indicators or key performance indicators. These are variables that provide insight into the results of the company. By monitoring this data, you can keep a finger on the pulse and you'll receive a timely signal to intervene if necessary.

1. KPIs must be really key

Of course you want to know exactly how the company is doing. But an overkill of data is counterproductive: you lose the overview, making it difficult to manage properly. Don't limit yourself to just one KPI. It seems positive if many orders are received, but if these are loss-making because projects are running out structurally, the company still slides to the abyss.

Try to find a good balance in the number of KPIs and find the right coherence in the data. Therefore choose a limited number of KPIs that really determine the result. Which numbers are really key and which are more nice to know?

2. KPIs must be in line with the mission and vision

The choice of KPIs depends on the organization: with one company the occupancy rate is an important indicator and with the other the number of sales orders. Ensure that the KPIs stem from the mission and vision of the company. The final selection reveals the real priorities of the company. Is the emphasis on sales or, for example, is customer satisfaction also important? What you focus on also largely determines what people will focus on and can therefore determine the way in which the work is done.

Also try to translate into hard, objectifiable figures about which no discussion can arise afterwards.

3. ... and can be linked to promotions

Selecting KPIs over which you have no influence is useless. If an indicator turns red, you must be able to improve it by taking specific action. It must therefore be possible to link an action to every KPI.

4. A KPI must be measurable

Some concepts, such as 'customer friendliness', are difficult to quantify. Try to translate these into hard, objectifiable figures. For example, create a customer panel that periodically answers questionnaires to which scores are linked. The method of measurement must also be constant. Otherwise it becomes difficult to identify trends.

5. A good KPI is defined in concrete terms

Performance indicators must be clearly formulated and can't be interpreted in different ways. "Sales growth" is too general a concept. Make clear, for example, using a percentage. Also determine the frequency with which you report the figures.

6. Feasible and realistic

KPIs must not stand on their own. Therefore link them to objectives. Don't forget to set a timeline, because without a deadline the organization will lack the sense of urgency.

However, nothing is as demotivating as a bar that's set too high. A sharp increase in turnover is difficult for a retail chain if stores are closed at the same time. And aiming for an operating margin that no company in the industry achieves is useless. If the bar is too high, take intermediate steps.

Without a deadline, the organization lacks urgency.

7. A KPI also needs support

Try to involve all business units in the development of performance indicators. That provides valuable input, because you use the knowledge and experience elsewhere in the company. In addition, employees feel more responsible for the result. Discuss the results with the team regularly and discuss which improvements are possible.

8. Recording KPI must be simple

Once the performance indicators have been established, they must be accurately measured by all departments. Ensure that the information can be collected, processed and analyzed with little effort. A good administrative system is a must for this. For an optimal overview, it's useful if data can be integrated into a dashboard and if figures can be processed in graphs.

9. A KPI isn't an end in itself

A KPI shouldn't be a goal in itself, but only a tool to achieve a goal. For example, if only the growth of new customers is taken into account, there is a risk that the service will be watered down for existing customers, as a result of which the customer base will be thinned out. And a manager who is only judged by revenue growth can be tempted to lower prices or make costly acquisitions.

10. Be replaceable

If you have selected KPIs, evaluate them after a few months and adjust them where necessary. Also check the list regularly afterwards. If market conditions or the focus of the company change, it's logical that the list of KPIs should also be cleaned up.

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