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KPI of the Month
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Introduction
Key Performance Indicator has become one of the most abused buzzwords in our industry since client-server or business intelligence. Nearly every software and services vendor in the BI space claims to help better manage KPIs. Internal IT groups at companies place the KPI label on any metric which can be put in the data warehouse and presented in a reporting tool. Just because a metric can be presented in a glitzy front-end tool, it does not make it a KPI.
So what makes a metric a KPI. In this ongoing column, I will address the myth and reality of KPIs. Each month, we will examine a metric or KPI and how it can be used and abused by an organization.
The phrase Key Performance Indicator is many times overlooked. These three words, though can give guidance on the metric vs. KPI. Lets start from the back:
- Indicator The metric must indicate some result and/or pending result. This is different from being the actual result. Many times KPIs are internal indicators which will have an ultimate impact on the more emergent metrics, which typically show up in an annual report.
- Performance The metric must be related to performance, and in particular managing performance. If the metric is not related to performance, how can it be a KPI?
- Key Key in this context means most important or most relevant. Organizations will have thousands of metrics and hundreds of performance indicators. The KPIs are the ones that matter most, or are key to your organization.
In my book, Chief Performance Officer, the theme is measure what matters, manage what can be measured. This is the essence of the KPI. It must be measured. It must matter. It must be manageable.
Leading vs. Lagging
There has been much written and ongoing debates regarding leading and lagging indicators. In short:
- Leading Indicator A critical metrics which has a direct impact on either a) performance or b) other emergent metrics. Leading indicators are typically not available to public. Leading indicators can typically be adjusted to proactively change performance.
- Lagging Indicator A metric which is the result of a change in one or more leading indicators. Many times the lagging indicators are not unique to an industry or company. Lagging indicators can usually not be adjusted until after it is too late.
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