The 5 most important considerations in defining your KPIs

“What gets measured, gets managed” – Peter Drucker

I reference this quote all the time because it’s both simple and powerful. Successful companies set goals and then hold themselves accountable to achieving those goals. A key performance indicator (KPI) is a measurable value that demonstrates how effectively a company is achieving its goals. Defining your KPIs and then monitoring your progress is critical to success. As you define your KPIs, you should keep these 5 considerations in mind.

Strategic Alignment – Your KPIs should be aligned to company strategy and objectives. A business is ultimately measured against its stated goals, and the key performance indicators must be grounded by these goals. This may seem obvious, but it is not as easy as you might think. Careful consideration must be given to which KPI’s actually drive the business. More on this in the Focused KPI section below.

Measurement – The ability to collect data and measure your progress is an important factor to consider in selecting your KPIs. In order for a KPI to ultimately be effective, you have to have the ability to consistently and cost-effectively gather the data. You should also consider the underlying technology or processes that will be required in the collection process. And finally, once you have the data, you need a well-organized dashboard to communicate the results with stakeholders.

Actionable – One of the most important considerations that should inform your selection of a business KPI is whether or not the KPI is actionable. If a KPI does not drive action that leads to the achievement of a goal, then it is not an effective KPI. All KPIs that you consider should be viewed through this lens.

Focused – KPIs should be highly focused. Keep in mind that quality rather than quantity is important. I would rather see a company that has three really good KPIs that everyone in the company understands and rallies around than a dozen KPIs that don’t mean that much. So what does it mean to have a focused KPI? A good KPI is truly “critical” to the success of your business. If a KPI is too high level or too vague, it can be interpreted in many different ways, which can lead to no action or ineffective action.

Ownership – The only way that progress toward a goal is achieved is if there is real ownership of the result. Someone, or a group of people, has to own every one of the KPIs that are identified. Careful consideration should be given to who has the ability and the drive to own a KPI.

At Milestone, we are experts at helping companies drive results with world-class outsourced accounting services. Our team will help you define your KPIs, structure your accounting system to capture the data, and develop a customized reporting and dashboard solution that will allow you to make smart decisions and give you a competitive advantage. Give us a call at 317-810-0165 or email us at [email protected].