In the era of fast-paced businesses, quick optimized decisions are a must. But often companies find it difficult to chalk out a strategy that can optimize performances & ensure a maximized outcome. In such an adversity, KPI comes to the rescue.
KPIs are not just buzzwords but also one of the most effective tools to track the progress of specific business objectives. But what is KPI? What does it mean in HRM & Why is it Important? Well, this blog is here to answer all your KPI-related questions.
KPI Meaning & Full Form
KPI stands for Key Performance Indicator. It is defined as the quantitative measure of the efficacy of a particular strategy or the employees to achieve specific business objectives. It aids in establishing a target, evaluating its effectiveness, & figuring out the strengths & weaknesses of the plan. That said, KPIs also apply to individual employees, measuring their performances per the set strategy.
For instance, KPIs for content writers are measured in terms of reach, engagements, & organic traffic generation. In HRM, KPIs help track & evaluate various aspects of the HR functions, portraying how well they have contributed to the established goals.
How are KPIs different from Metrics?
Though KPI seems to be like Metrics at first glance, there is a thin line of difference. Fundamentally, Key Performance Indicators are quantitative measures that are specific in analysing the success of certain strategies to reach the set objectives whereas Metrics record & track the overall performance of the strategies & portray if they are aiding in the growth or not. Hence at a larger level, KPIs are said to be strategic & Metrics are tactical.
Metrics are the measures that support planning & measuring the KPIs. To summarise, every KPI is a Metric, but every Metric isn’t a Key Performance Indicator.
What are the types of Key Performance Indicators?
Primarily Key Performance Indicators are categorized into 4 types, namely Qualitative, Quantitative, Leading, & Lagging. These types further incorporate other categories like Finance KPIs, Sales KPIs, HR KPIs, & more.
- Quantitative KPI: Allowing straightforward analysis & assessment, Quantitative KPIs are the numerical data that provide clear & straightforward insights into the aspects of a strategy. They are strictly date-based & expressed in numbers having employee engagement, employee turnover rate, & customer acquisition costs, as examples.
- Qualitative KPI: As the term suggests, these Key performance indicators are measures of the intangible & hard-to-quantifiable aspects. They are the perfect tool to analyse & understand human or emotional aspects related to the strategies. Some examples include Employee satisfaction, company culture & customer satisfaction.
- Lagging KPI: To understand the outcomes & mechanisms of previous plans & strategies, Lagging KPIs are applied. They are retrospective & effective in assessing the previously implemented strategies. Market share, revenue, & customer churn rate are some of its examples.
- Leading KPI: Key Performance Indicators for the future that help in taking ardent steps for maximum outcomes are called the Leading KPIs. They help in anticipating future performances & in chalking out plans considering the limitations & circumstances. Some of the examples are Employee training hours, social media traffic, website bounce rate, etc.
Some examples of Human Resource Key Performance Indicators are:
- Employee Turnover Rate
- Monthly overtime costs
- Employee Engagement
- Labour Hours
What are the Benefits of Key Performance Indicators?
KPIs are not just numbers but are effective in driving planned decisions, especially in HRM, thus fostering higher outcomes. They are strategized based on various conditions & adjustments to avoid delays & better optimization of the resources. First & foremost, KPIs are easily calculated, making it an analysing tool for all kinds of businesses & establishments.
Moreover, they bring in transparency that helps ensure clear-cut objectives and proper employee engagement. Lastly, being a data-driven tool, they analyse everything to determine the trends and patterns necessary for making an informed & well-crafted decision, boosting the company’s comprehensive growth.
How to Set & Use the KPIs?
Setting up KPIs needs to be very tactical and strategic for its best optimization. This makes it important to have a mind-map of the objective targets around which the Key Performance Indicators can be used efficiently.
For maximum utilization of KPI, these 5 steps are the most crucial:
- Formulating the objectives: This is to decide where & how KPIs are to be used for an effective analysis.
- Outlining the expectancy: “What is to be derived from the KPI” is the main agenda to be dealt with in this step.
- Assessing KPIs: Planning & appropriating the past data as per the required Key Performance Indicators.
- Reading the Targets: Owing to its transparency, it will be easier to track the progress & define the position appertaining to the applied KPIs.
- Computation & amendments: This involves assessing the KPIs in terms of their output. In case of a deviant output, changes in the KPI are to be introduced.
Applying the perfect Key performance Indicator becomes tricky at times. The benefits that it produces can be nullified if the KPIs are not evaluated as per the lagging and leading KPIs. Hence it becomes a prerequisite to know the KPIs and figure out an objective-oriented KPI for the utmost optimisation and growth of the business.