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A performance indicator or key performance indicator (KPI) is a measure of performance.[1] Such measures are commonly used to help an organization define and evaluate how successful it is, typically in terms of making progress towards its long-term organizational goals[2]. KPIs can be specified by answering the question, "What is really important to different stakeholders?". KPIs may be monitored using Business Intelligence techniques to assess the present state of the business and to assist in prescribing a course of action. The act of monitoring KPIs in real-time is known as business activity monitoring (BAM). KPIs are frequently used to "value" difficult to measure activities such as the benefits of leadership development, engagement, service, and satisfaction. KPIs are typically tied to an organization's strategy using concepts or techniques such as the Balanced Scorecard.

The KPIs differ depending on the nature of the organization and the organization's strategy. They help to evaluate the progress of an organization towards its vision and long-term goals, especially toward difficult to quantify knowledge-based goals.

A KPI is a key part of a measurable objective, which is made up of a direction, KPI, benchmark, target, and time frame. For example: "Increase Average Revenue per Customer from £10 to £15 by EOY 2008". In this case, 'Average Revenue Per Customer' is the KPI.

KPIs should not be confused with a Critical Success Factor. For the example above, a critical success factor would be something that needs to be in place to achieve that objective; for example, an attractive new product.


Identifying Indicators of Organization

Performance indicators differ from business drivers & aims (or goals). A school might consider the failure rate of its students as a Key Performance Indicator which might help the school understand its position in the educational community, whereas a business might consider the percentage of income from return customers as a potential KPI.

But it is necessary for an organization to at least identify its KPIs. The key environments for identifying KPIs are:

  • Having a pre-defined business process (BP).
  • requirements for the business processes.
  • Having a quantitative/qualitative measurement of the results and comparison with set goals.
  • Investigating variances and tweaking processes or resources to achieve short-term goals.

A KPI can follow the SMART criteria. This means the measure has a Specific purpose for the business, it is Measurable to really get a value of the KPI, the defined norms have to be Achievable, the KPI has to be Relevant to measure (and thereby to manage) and it must be Time phased, which means the value or outcomes are shown for a predefined and relevant period.

Marketing KPIs

Some examples are:

  1. New customers acquired
  2. Demographic analysis of individuals (potential customers) applying to become customers, and the levels of approval, rejections, and pending numbers.
  3. Status of existing customers
  4. Customer attrition
  5. Turnover (ie, Revenue) generated by segments of the customer population.
  6. Outstanding balances held by segments of customers and terms of payment.
  7. Collection of bad debts within customer relationships.
  8. Profitability of customers by demographic segments and segmentation of customers by profitability.

Many of these customer KPIs are developed and managed with customer relationship management (CRM) software.

Faster availability of data is a competitive issue for most organizations. For example, businesses which have higher operational/credit risk (involving for example credit cards or wealth management) may want weekly or even daily availability of KPI analysis, facilitated by appropriate IT systems and tools.

KPIs for Manufacturing

Overall equipment effectiveness, or OEE, is a set of broadly accepted non-financial metrics which reflect manufacturing success.

  • Cycle Time

Cycle time is the total time from the beginning to the end of your process, as defined by you and your customer. Cycle time includes process time, during which a unit is acted upon to bring it closer to an output, and delay time, during which a unit of work is spent waiting to take the next action.

  • Cycle Time Ratio

CTR = Standar dCycleT ime / RealCyc leTime

KPIs for Supply Chain Management

Businesses can utilize KPIs to establish and monitor progress toward a variety of goals, including lean manufacturing objectives, MBE (Minority Business Enterprise) and diversity spending, environmental "green" initiatives, cost avoidance (CA) programs and low-cost country sourcing (LCCS) targets.

Any business, regardless of size, can better manage supplier performance with the help of KPIs robust capabilities, which include:

  • Automated entry and approval functions
  • On-demand, real-time scorecard measures
  • Single data repository to eliminate inefficiencies and maintain consistency
  • Advanced workflow approval process to ensure consistent procedures
  • Flexible data-input modes and real-time graphical performance displays
  • Customized cost savings documentation (CSD)
  • Simplified setup procedures to eliminate dependence upon IT resources.

Main SCM KPIs will detail the following processes:

  • sales forecasts
  • inventory
  • procurement and suppliers
  • warehousing
  • transportation
  • reverse logistics

Suppliers can implement KPIs to gain an advantage over the competition. Suppliers have instant access to a user-friendly portal for submitting standardized cost savings templates. Suppliers and their customers exchange vital supply chain performance data while gaining visibility to the exact status of cost improvement projects and cost savings documentation (CSD).

Categorization of indicators

Key Performance Indicators define a set of values used to measure against. These raw sets of values fed to systems to summarize information against are called indicators. Indicators identifiable as possible candidates for KPIs can be summarized into the following sub-categories:

  • Quantitative indicators which can be presented as a number.
  • Practical indicators that interface with existing company processes.
  • Directional indicators specifying whether an organization is getting better or not.
  • Actionable indicators are sufficiently in an organization's control to effect change.
  • Financial indicators used in performance measurement and when looking at an operating index

Key Performance Indicators in practical terms and strategy development means are objectives to be targeted that will add the value to the business most (most = KEY INDICATORS OF SUCCESS).


In practice, overseeing Key Performance Indicators can prove expensive or difficult for organizations. Some such as staff morale may be impossible to quantify.

Another serious issue in practice is that once a KPI is created, it becomes difficult to adjust to changing needs as historical comparisons will be lost. Conversely a dubious KPI is often created because history does exist.

Furthermore if a KPI is based only on in-house practices it may be difficult for an organization to compare with similar organizations yet often, business with a similar background are used as a benchmark for KPIs.

Analyst must be aware that a KPI may be a rough guide rather than a precise benchmark.

See also



  1. ^ Carol Taylor Fitz-Gibbon (1990), "Performance indicators", BERA Dialogues (2),  
  2. ^ Key Performance Indicators – What Are Key Performance Indicators or KPI

Further reading

  • David Parmenter, Key Performance Indicators. John Wiley & Sons 2007, ISBN 0-470-09588-1.


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