The KPI framework is a potent management tool for measuring management efficiency. But their potency actually depends on a few factors.
Key performance indicators are management tools that measure the relevance and usefulness of employee activities and company programs. But in order for KPIs to be effective, there are some things that must be considered. One is the framework of the KPIs themselves. The KPI framework must include all the important aspects of company operations essential to coming up with an accurate assessment of company performance. Also included in the framework are metrics that efficiently gauge whether or not outputs are beneficial to the company.
The formulation of KPIs that are appropriate to organizational goals depend basically on the ability of management to break such goals into smaller and more specific units. These specific units provide organizations with the measures by which key performance indicators can be assessed as to their relevance and effectiveness.
Most common key performance indicators that business organizations are likely to concentrate on are those pertaining to finance management, employee productivity, product quality, consumer satisfaction, management process efficiency, and others. Differences in key performance indicators that organizations utilize will largely be the result of differences in goals and objectives, reading of the current situation the company finds itself in, and most importantly, resources — both human and non-human. But whatever the differences, all key performance indicators have only one ultimate objective — ensure that goals and objectives are attained.
Plans are the specifics of goals and are the most important aspect of the framework. Plans supply the strategies, clearly defined activities, timeframes, and resources needed to accomplish the specific expected outputs. It is obvious that plans provide the key performance indicators that determine whether the whole management process and its different components are effective or not.
One very useful function of KPIs is their ability to detect limitations in the existing management process. Whether there is a particular program in the plan geared towards management process improvement or not as long as plans are conscientiously implemented and periodically and objectively assessed, issues pertaining to process will always be exposed. And when recognized as such, there will always be opportunities for process improvement.
Goals and plans provide anchor to all company activities. Employees will be conscious that however simple and seemingly irrelevant to the overall scheme of things their tasks are, they are useful and beneficial to the company. But this feeling is only possible when goals and plans are integrated into the daily routines of employees; otherwise, what they are doing will be just routines that they do mechanically.
This is one of the most difficult tasks that management usually faces in implementation of plans. For managers, of course, this is quite easy but for others, translating plans into quantitative and qualitative targets is tedious and time consuming. Even then, for plans and KPIs to be assessed properly, full integration of plans from top to bottom must be accomplished.
The KPI framework enables employees to know the importance of what they are doing and provides organizations a way of measuring the usefulness of outputs and the means to adjust to various issues that impact operations.