Posted on: Sep 12, 2023
“If you can’t measure it, you can’t improve it.” – this is timeliness quote of management guru Peter Guru. Despite the passage of a few decades, this sentence has become a fundamental principle that is hard to argue with, and therefore most companies collect the crucial data in the form of metrics called Key Performance Indicators (KPIs). But how to organize this process effectively so that these indicators contribute to the company’s strategic objectives and are not just a set of corporate targets?
What are the key performance indicators?
As key performance indicators should be a strategic part of an organization, it is worth dissecting this term in order to fully understand the concept:
- KEY – it means that there should be only the most important metrics.
- PERFORMANCE – it means that metrics ought to be measurable, quantifiable, and controlled.
- INDICATOR – it means metrics have to show the direction of current and future performance.
Generally, key performance indicators are a set of the most important metrics which show how current performance corresponds to the desired results. The gaps between them indicate actions must be taken, while comparisons between periods determine trends. There can be different sets of KPIs starting from individual contributors, through teams and departments, ending up with strategic KPIs.
How to track key performance indicators?
Essential is to optimize the amount of data to track. Collecting too much information can lead to the situation where the company focuses more on the process of data collection than analysis and improvement actions. The main rule is to measure only those parts which can be managed, as there always should be determined how to influence part.
Moreover, during designing KPIs, crucial is to focus on predictability (a metric should predict the future of its trend) and actionability (a metric should trigger a corrective action).
Furthermore, all KPIs should be set up with targets. Ideally, it should be done based on baseline data in aim to have realistic targets, which are not extremely challenging. Otherwise, there is a risk that employees will try to find a way round.
Track efficient KPI metrics – methods
If you want to efficiently track KPIs, you should remember about:
- selecting the proper tool – which will be easily accessible and understandable,
- having reliable data source – quality of decisions made depends on input accuracy,
- automated reporting – it decrease costs and risk of human errors,
- elimination of judgmental decision – KPIs must be standardized, and the number of exclusions or judgmental decisions should be eliminated or at least minimized,
- ownership – each metric must be assigned to individual or group, who is responsible for its outcome and empowered to improve it in the future,
- regular review – there must be proper governance resulting in a set of actions,
- benchmarking – regular comparison with the market can help identify risks and potential opportunities,
- root cause analysis – only when results trigger actions, it can be valuable for a company,
- data comparability between periods – figures should be relevant between periods and comparable,
- feedback loop – KPIs have to be periodically reviewed with feedback from different parties,
What are key performance indicators in project management?
KPIs are mostly used for tracking process performance, but they can also be used in project management as they can show the progress of the project and reveal potential risks. On small projects, there is not enough time to work on multiple metrics, while it may be a key to simply complete deliverables without client’s complaints. In the case of complex projects, core metrics can allow to track the big picture, to make better and faster decisions, to identify problem areas and to improve relationships with stakeholders. All in all, the number of metrics must be appropriate to the size of the project and confirmed with the steering committee.
They can be grouped into 4 categories: timeliness, budget, quality, and effectiveness. Below, there is an example of one KPI from each category:
- Project’s budget – Cost Performance Index (CPI)
Formula: Cost performance Index = Earned Value / Actual cost, where:
Earned Value is budgeted cost of work completed and Actual cost is value of expenses incurred.
Interpretation: If CPI is lower than 1, then the project is underperforming as current cost exceeds expected cost.
- Project’s Timeliness – Planned Hours vs. Time Spent (By Task or Project)
Formula: Planned Hours / Time spent, where:
Planned Hours is number of hours estimated for task/project while Time Spent is the actual value hours utilized for task/project:
Interpretation: If value is lower than 1, then task/project exceeds timeliness.
- Project’s Quality – Net Promoter Score
Depending on the project, it can be measured by question surveys.
Project’s Effectiveness – Number of Project Milestones Achieved On Time
Formula: Number of Project Milestones Achieved On Time / All Milestones
Interpretation: Higher the value, better the effectiveness.
Overall, project management metrics should support a project’s performance, and they are not fixed. Actually, metrics should be flexibly adapted to the current phase and issues of the projects.