KPI Documentation: Understanding KPI Names, Calculating Formulas and Establishing Targets

Managing the KPI framework properly is absolutely necessary for the success of any business. However, managing this framework is not a bed of roses due to the lack of standards KPIs definition, naming and their respective use. The best method to obtain success in this regard is to employ an effective and rigorous KPI documentation process and to consolidate an internal library for KPIs. In order to accomplish the task, it is imperative for the business leaders to understand the KPI names as well as formulas for establishing KPIs and targets for them.

Introduction to KPIs:
KPI is the abbreviation of Key Performance Indicators. KPIs are very important for any organization as they help it to analyze its performance at any given time and later alter its strategies and plans accordingly in order to achieve the desired targets. The KPI Institute defines KPI as;

A measurable expression for the achievement of a desired level of results in an area relevant to the evaluated entity’s activity.

Values Added by KPIs:
KPIs add plethora of values to any organization such as;

  • Clarity:
    KPIs help business leaders and executives to gather big and scattered data and use it in the benefit if the organization. Similarly, they help in identifying areas that are underperforming as well as tell the authorities where they currently stand by offering a clear picture of the situation.
  • Focus:
    KPIs encourage better communication, alignment and synergy between the departments and better control of the entire production process.
  • Improvement:
    KPIs enable managers to take corrective actions and access those improvements as well. Similarly, they enhance efficiency ensuring the achievements of objectives defined in the strategy by increasing productivity.

Identifying KPIs:
As per KPI institute, the KP is a measurable expression for the achievement of a desired level of results in an area relevant to the evaluated entity’s activity. Therefore, it is very important to identify those KPIs that are actually going to help you to achieve goals defined in the initial strategy or plane rather than choosing those KPIs that will just demoralize the employees and create further problems for the project.

For instance, you need to ensure employees satisfaction rather than forcing employees to complete a certain task within a short amount of time that is impossible to accomplish sometimes. This will just demotivate the employees as you are not willing to give them any break or incentive. The consequences of this approach can be quite drastic in the long run. Following figure illustrates which Key Performance Indicators the policy makers need to choose and which they should avoid at any cost.

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And following is a graphical illustration of KPI lifecycle.

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Functions and Designs of KPI Documentation Form:
There are many functions and designs of KPI documentation form. Following lines explain the function, designs and process of KPI documentation form one by one.

  • KPI Documentation Form Functions:
    Functions of KPI documentation form are as under.
  • Provides clarity and meaning to KPI names and thus, ensures understanding of KPIs.
  • It ensures and facilitates communication through standardization.
  • It enables automation.
  • It activates prerequisites.
  • It helps in knowledge management.
  • Documentation form educates various stakeholders about KPIs.

The KPI Documentation:
The KPI documentation is about finding metadata fields and then filling in the required fields with each KPI. The benefits of KPI documentation are that it simplifies the communication, align the various departments and “sets the rules” for future reference. The KPI documentation is normally done through Standardized KPI Documentation Form.

The KPI Documentation Process:
The KPI documentation process is normally divided into following steps.

  • First of all, you need to review the available internal literature.
  • Secondly, you should review the data available from external sources.
  • The third step is the consultation with the staff who is responsible for collecting data.
  • Present your findings to owner for approval.
  • Now get your KPIs approved by the architect/SME/strategy manager.
  • Subsequently, management team will approve suggested KPIs.
  • Now it is time to add new KPIs to KPI library.

Organizational KPI Library Development:
KPI Library is actually the repository of all the KPI documentation forms ever used by the organization. There are many benefits of KPI library such as it can be an inspired source for setting targets and selecting new KPIs. Similarly, it becomes a standardized framework that eliminates any chances of human error. Finally, it also sustains and promotes the performance culture within the organization.

Standards for Naming KPIs.
There are many standards for naming KPIs and it is impossible to mention all of them in this short summary. For detailed overview for these standards, it is recommended that you actually go through the entire webinar. However, following figure will give you a general overview of standards for naming KPI.

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Approaches to Target Setting:
Different people use different approaches to set the right targets for KPIs. It is important to set the right targets for KPIs if you really want to outperform your rivals in the competitive markets. Following is a general target setting process.

  • It is always better to start top-down for setting targets.
  • Consultation of relevant date is absolutely necessary.
  • The third step is to consult staff responsible for collecting data.
  • Afterwards, you need to consult management as well.
  • Now, recalibrate your process or approach vertically or horizontally.
  • Do not immediately link targets to financial rewards.
  • It is also important to review upon KPI activation.
  • Refresh the KPIs with managerial approval.

Summing up, no organization or business can even survive in highly competitive markets without formulating proper and effective KPIs, nothing to talk about excelling in its respective field. In this regard, you as a business leader must understand what KPIs are, how to name and calculate them and finally, how to set right targets for these KPIs to consolidate your business and establish it on solid ground.

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