Key Performance Indicator (KPI)

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Audio Terms — 1:39

What is a Key Performance Indicator (KPI)?

Key Performance Indicator, most often referred to as a KPI, is a performance measurement that helps organizations determine how well they perform concerning their strategic goals and objectives. 

Additionally, KPI’s help organizations manage their complex performance to a manageable number of essential (or key) indicators that provide evidence that can assist decision making and improve company performance.

Key Performance Indicators are not limited to financial performance. Almost every company department may utilize KPIs to monitor and improve their performance. Marketing uses KPIs to measure their return on advertising spend amongst other KPIs. Human Resources use KPIs to measure employee engagement retention. Operations will use KPIs to help improve output and quality.

KPIs versus Targets and Example

While a target may appear to be the same as a KPI, they are different. Four elements make-up a KPI:

  1. Strategic Objective: For example, improve employee retention.
  2. Measurement Decision: For example, reduce employee turnover.
  3. Define a Target: For instance, reduce employee turnover by 25%.
  4. Specific Time Frame: For instance, reach the target by a specific date, month, quarter, or year.

Establish a target once you have chosen the KPI(s) you want to incorporate as part of your performance monitoring.

Following the example above, the KPI would be:

Reduce employer turnover by 25% by the end of the second quarter of this year.

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