Selecting the Right KPIs Can Make a Big Impact

Dec 12, 2011 – 10:59 am | Posted by Joe Panebianco

Everyone talks about the importance of managing with Key Performance Indicators (KPIs). As you learn more about what KPIs companies select and how the KPIs are used, you quickly learn that there are significant improvement opportunities for KPI selection and management.

The most common mistake is selecting only lagging indicators to measure performance, with no emphasis on leading indicators to monitor the process. An example of a lagging indicator is “Sales Revenue” recorded at the end of the month. A leading indicator for sales revenue is “Sales Quotes” which would monitor the sales process and give sufficient time to adjust and achieve the sales target. The lesson: if you only monitor the lagging indicator, by the time you realize you have a problem, it is too late, the month is over. If you measure a leading indicator, you can take action in time to achieve your goal.

The second most common mistake in KPI management is not getting to the root cause of the missed target and failing to develop a countermeasure plan. Many companies monitoring their KPIs see that they’ve missed a target and put a “Band-Aid®” on the problem by developing a plan to redirect resources and work harder to achieve the goal. In most cases, this means that they still miss a target—only by less. Most likely, they will continue to have the same problem over and over because their process failed to identify a root cause analysis and a countermeasure to address the root cause. Instead, you should follow a disciplined approach to problem solving that identifies the root cause for missing the KPI and developing a countermeasure plan that defines WHAT needs to be done, by WHEN, and by WHOM.

What issues have you experienced with KPI selection and KPI management? How have you made your KPI management system more effective?

:Key Performance Metrics, KPI, Root Cause Analysis

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