KPIs: How to Choose the Right Key Performance IndicatorsA while back we talked about measuring what matters. We briefly talked about key performance indicators (KPIs) and how they measure the quality of performance and assist in developing performance goals and strategies on both the individual and organizational levels.

We came across an article on Industry Week on how to select the best KPIs to drive operational improvement. In it, author Jason Piatt says the key to success is selecting KPIs that will deliver long-term value to the organization.

Less is More

Piatt says managers have a habit of adding KPIs but not converting the list to the appropriate size to drive strategic intent. Not everything needs to be measured, so focus on the really important things to help your business grow.

Measure More than Performance

KPIs should measure performance toward the strategic objectives of the business. They should be measuring the most important factors in achieving your goals and being successful.

Ensure Validity

Make sure your measurement system is valid. Priatt suggests validating the repeatability and reproducibility of your measuring system.

Make Sure They Are Relatable

Everyone in your organization, on all levels, should be able to relate to the metrics. Piatt says KPIs, such as overhead absorption percentages, are common, but they aren’t necessarily effective for production personnel. He suggests using metrics such as units shipped per hours worked if your objective is to increase production and/or reduce hours per unit.

What You Measure Must Be Controllable

To obtain the strategic objectives or goals you have set, the KPIs you choose must be controllable. Piatt says this is often forgotten in a successful operational strategy. He suggests asking yourself, “Is the individual empowered to make necessary changes in order to drive performance of the KPI?” If they aren’t, change it so your team is able to meet their objectives.

Business leaders can be inundated with data and sometimes don’t know where to look first. Choosing the right KPI isn’t always easy so use these tips to help you along the way. Like we’ve said before, it’s important to have a broad range of metrics that enable you to assess the performance and understand why you are performing as you are.

What other tips would you add?

Image: stevenharris via Flickr, CC 2.0