#69 What Does 'KPI' Really Mean?

Do you need KPIs? What about targets? It goes without saying, you need goals and objectives, doesn't it? You'll need some measures and metrics as well, won't you? Or at least some indicators.

Good grief! It sounds like a performance management shopping list! But even if there were performance management shopping malls around, I'll bet a lot of people wouldn't find what they were looking for. And that's simply because, they don't really know what all these things actually are!

Let's explore these terms, and see if we can't get some more clarity about how they are different from one another, and why.

A measure is a quantification of something you can observe, such as the proportion of customers that have purchased from you more than once or the average time it took you to ship customer orders last week.

Tip: If a measure is not measurable, then it can't really be a measure. You've probably not made the "something" specific enough to measure.

A performance measure is a type of measure that quantifies an important result, that impacts a business' or organisation's success. Performance measures are usually taken regularly over time, so that changes in performance can be determined. For example, as time goes by, does it take us less time or more time to ship customer orders?

Metrics and indicators are measures too There really isn't a strong enough body of knowledge out there to give them their own unique meaning. Measures are indicators too, in that they indicate the extent to which something is happening. They are rarely precise or exact, due to constraints with data collection, measure definition and analysis methods. But precision in a measure is not as important as the measure being able to give us useful knowledge we otherwise did not have.

KPIs, or key performance indicators, are measures too. But generally, KPIs are the most important measures for a business or organisation, usually having the highest leverage to impact its success. Due to their catchy name, the term KPI has almost become synonymous with the term performance measure.

Tip: I prefer to use the term 'performance measure' as the generic label for any quantification of a performance result.

A target is not a goal or a performance measure but rather a value that represents a level at which you want performance to be. If you have a performance measure that tracks the average number of errors in your invoices, then a target for that measure is also an average number of errors. But while your measure shows that currently you have an average of 0.14 errors per invoice, your target would represent an improvement on that, which could be 0.05 errors per invoice.

Objectives and goals are statements that link performance measures to targets and timeframes. "Reduce the average number of errors per invoice to 0.05 by December 31 2007" is an example of an objective, or a SMART goal. So it's ingredients are a performance measure (average number of errors per invoice), a target (0.05) and a timeframe (December 31 2007).

Tip: There is no one true definition of terms like these, so you might find it useful to make your own definitions clear in your organisation, to guide how they are understood in practice. But make sure you do some research first, to scope how others use these terms, to widen your awareness.