There is a need to prepare for KPI implementation because this will increase the likelihood of implementation success.
There are a number of stages to be fulfilled and prerequisites to comply with by a company in order to prepare for KPI implementation. Foremost, there is a need to identify all key performance indicators and the goals to be achieved for each. The method of measurement for each metric should also be defined, as well as the relevant data needed for the pre-identified metrics. Moreover, reporting requirements, like graphical and table output, should be identified even during the preliminary stages.
Key performance indicators (KPIs) differ from one organization to another. Generally, these data are obtained from spreadsheets, charts, and reports, or a combination of these. They may also include sales figures describing the sales performance of a company in a regional and global perspective, real-time supply chain information, and any other metric that is crucial in achieving organizational success.
KPIs are critical to company success because without measurable quantities, it would be impossible for managers to assess and evaluate performance. In addition, KPIs are essential in planning strategic plans. It likewise gives additional value to some operational aspects of the company that might not be easy to quantify, like internal customer, employee development, and customer satisfaction.
While the use of KPIs has become the latest trend in the business world today, it is important to distinguish them from performance targets. They are not the goals of the organization; rather, they are measures that help management assess the current state of business for them to come up with appropriate operational decisions. KPIs are created to support the fact that performance targets are met or otherwise. Most KPIs are quantitative, as they can be represented by numerical figures. Some KPIs, meanwhile, are practical indicators in that they interact with current business processes. There are also directional KPIs that determine whether a company is improving or otherwise. Some KPIs are also called actionable indicators, as they can be used to effect improvements in an organization.
Identifying KPIs that are relevant to the business may be quite tricky for managers, as there might be too many performance indicators to choose from. Those in the know recommend that the SMART criteria be used when selecting KPIs. That is, the chosen performance indicators should be specific, measurable, achievable, result-oriented, and time-bound.
As mentioned during the first part of this article, preparation for KPI implementation takes several stages. The initial stages involve designing the KPI framework, which include deciding on some things that are essential for the evaluation system to work. Among these are the goals and plans that the company envisions, the facilitating and implementing procedures for future activities, methods of measuring output quality, and the involvement of a competent workforce.
Some companies end up concluding that using KPIs are ineffective, as these can indeed by difficult and expensive to implement. They might also be difficult to change in the subsequent years. However, if a company will take time to prepare for KPI implementation, it can become a factor in the achievement of organizational objectives.