10 simple tips for developing effective KPIs

How do you define your strategy? Many people find that they spend a lot of time developing strategies that are never put into practice.

Key Performance Indicators (KPIs) are a measure used to evaluate goal achievement. KPIs help us ensure that the set strategy is achieved. To operationalize the strategy, you must therefore set KPIs that actually work.

Here are 10 simple tips for developing key metrics that work:

1. Start with the strategy

Without a good understanding of what the business or organization wants to achieve, you often end up with too many KPIs. A short strategy definition makes it easier to define goals and how they can be achieved.

2. Find out what questions you want answered

If the strategy is to increase margins, perhaps a relevant question would be “On which products or services do we incur the most costs in relation to the revenue generated?”

These questions are further used to ensure that the KPIs you create are based on an actual question.

3. Examine data needs

For each of the questions, write a little about what data you need. Here it is important to think not about what data is available, but what it would be like in a perfect world.

4. Check what data already exists

Conduct a GAP analysis. Check if others in the organization have access to missing data and relevant information.

5. Find related data

You should have few KPIs, but you can have many key figures and qualitative assessments. Make a list of all the information needed for each period to ensure good key figures. This could be liquidity, time series, surveys, customer invoices, figures from cloud solutions, cash flow analysis, project status and market data.

6. Find the best possible measurement method and frequency

How to calculate and how often, must be based on when and how often the KPI is needed. In the tool you use for strategy implementation, there should be plenty of space to describe HOW to calculate. What should not be included and what is 1 (one) unit.

7. Give responsibility

The person responsible for a KPI may be different from the person responsible for collecting data for it. It should therefore be possible to establish one person with deviation responsibility and another with reporting responsibility.

8. Ensure support both in management and among employees

It is important that everyone understands what they want to achieve. KPIs should be part of all decisions in the organization. KPIs should also be such that they give employees a better understanding of how their contributions affect goal achievement.

If you just order employees to start collecting a lot of data without them understanding why, you will end up with a less enthusiastic and motivated workforce.

A strategy implementation solution that everyone has access to is a good start.

KPIs should not feel personal or supervisory – they should describe why you are measuring and what the measurements will be used for.  

9. Find out how KPIs should be communicated

Long reports with tables and information are not good enough. Important information must not be hidden. For KPIs to provide value in the form of useful information, they must be communicated and embedded in the business.

KPIs should be presented as simple visualizations with detailed options showing target numbers, actual numbers and trends. There should be opportunities to comment on deviations directly in the system, so that explanations for deviations are not left in emails. Explanations of deviations will be useful for future analysis.

10. Review your KPIs 

Every year, you should continuously review your KPIs to ensure they are actually having a positive impact on your strategy. If the KPI is no longer useful, it will just become clutter. Therefore, you need to continuously assess the value of the KPIs.