key performance indicator (KPI)

This definition is part of our Essential Guide: Key IT metrics: A CIO guide

A key performance indicator (KPI) is a business metric for evaluating factors that are crucial to the success of an organization. The purpose of using KPIs is to focus attention on the tasks and processes that management has determined are most important for making progress towards declared goals and targets.

KPIs differ per organization. For example, a KPI for a public company may be its stock price while a KPI for a government might be a low unemployment rate. KPIs will also differ for roles people play in the same organization. For example, a Chief Executive Officer (CEO) might consider profitability as the most important KPI, while a sales team manager in the same company might consider successful service level agreement (SLA) delivery numbers as the most important KPI. 

Because KPIs often gauge abstract targets such as user experience or job ticket turnaround effectiveness, identifying useful KPIs can be  challenging. The selection of appropriate KPIs depends, in part, on the organization's ability to actually measure the indicators. Typically a management team will gather requirements and analyze correlations between metrics, but in the end, they must put the KPIs in practice and observe what behaviors the KPIs encourage.

Once KPIs have been determined, management must continually refine the indicators to ensure they reinforce each other and do not cause conflicting priorities. In addition to being quantifiable, all KPIs should be well-defined and communicated to clearly. Each KPI should be part of the next higher-level summary, so that all levels of the organization are pulling in the same direction.

Many successful companies limit KPI scope to small sets that evaluate the success of individuals in the organization. Because having too many KPIs can dilute the employee's attention to the point at which key indicators do not get the attention they deserve, it may be effective to:

1. Identify which three to five key performance indicators (KPIs) that should be tracked for each employee role or line of business (LOB).

2. Implement automated tools to collect data and present KPIs to company management in a balanced scorecard, performance scorecard or executive dashboard.

3. Evaluate how well the employee or LOB is making progress towards the organization's strategic business goals.

4. Re-evaluate how well the KPIs are supporting current business goals.

5. Make adjustments as needed.

This was last updated in January 2017

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