Best-practice organizations know that choosing the right KPIs is a critical step in generating meaningful insights and reports. A well-balanced set of measures provides actionable insights into an organization’s performance, helps identify current challenges and opportunities, and aligns with the organization’s culture and strategic goals.
In July, I wrote about what KPIs are and their perceived effectiveness. This is part two of the series and covers how organizations can develop their KPIs.
Identify the priorities
First, organizations should look at their operational priorities to determine the type of KPIs that would align best to the strategic direction. Based on our 2024 survey, organizations primarily focus on: improving performance (48%), ensuring quality and consistency (46%), and optimizing resource utilization (44%).
Get input
Looking at both internal and external sources to determine which measures to use can help you draft a list of the measures to consider for KPIs. Sources most often consulted by organizations are:
- Existing internal data (64%)
- Heads of departments/divisions in organization (61%)
- Review of benchmark measures used by other organizations (38%)
- Heads of corporate organization (38%)
- Workshops with stakeholders (36%)
It’s important for organizations to remember that they don’t have to start with a blank sheet of paper when determining what measures to use. For example, APQC’s Key Benchmarks, End-to-End Process Maps and Measures, and Definitions and Key Measures resources in the Resource Library are great starting points.
Decide on selection criteria
Once organizations know where their strategic priorities are, they can determine the criteria they will use to select their KPIs. It is important for organizations to use certain criteria when selecting their measures, to ensure the measures will achieve their desired purpose.
The top criteria used is whether the KPI will have a direct impact on organization objectives. Historical use of the KPI and ease of collection and analysis are also top criteria. Our 2024 survey data revealed the following as the top five criteria used by organizations:
- Direct impact on organization objectives (56%)
- Historically used by the organization (43%)
- Easy to collect and analyze data (41%)
- Ability to track trends over time (35%)
- Commonly used in the industry (34%)
To ensure proper strategic alignment, organizations can use value path analysis to align measures with strategic objectives. This entails leveraging senior management or a centralized team to analyze the value stream and link measures to high-impact business processes.
Keep it simple
Even if you’ve picked the right measures, their impact wanes if you pick too many or overwhelm your stakeholders, resulting in either too many measures overall or a cluttered dashboard.
There is typically a single KPI per process or objective, which is in turn supported by no more than seven support indicators used to manage and monitor performance. This is because KPIs are strategically important, result from operational objectives, and are central to measuring the impact on key stakeholders (i.e., stockholders, customer, and employees). Regarding dashboards, ten measures or fewer are usually sufficient.
To sum it up
When it comes to picking KPIs, most organizations leverage best practices and combine stakeholder engagement with criteria used to balance strategic alignment with data availability, quality, and access. However, it's important to note that KPI selection is not a once and done endeavor. It’s just as important to regularly re-evaluate measures to ensure that they are still relevant and accurate.
To learn more, visit our content collection: 2024 Operational KPI Priorities & Challenges