What is a KPI? What are KPIs? Key Performance Indicators

Online PM Courses - Mike Clayton

16 Mar 202206:18

Summary

TLDRIn this video, the concept of Key Performance Indicators (KPIs) is explored. KPIs are quantifiable measures of progress towards specific business goals, linked to strategic objectives. The video highlights the importance of KPIs in managing and improving performance, citing Peter Drucker's quote, 'What gets measured, gets managed.' It explains the characteristics of effective KPIs, emphasizing their role in decision-making, tracking performance trends, and ensuring alignment with organizational priorities. The video also outlines how to create good KPIs using the SMART criteria and provides practical insights for project managers to drive and enhance project performance.

Takeaways

📊 Key performance indicators (KPIs) are essential quantifiable measures of progress towards intended outcomes.
📈 KPIs help link performance to the achievement of business portfolio, program, or project objectives.
📋 KPIs focus work on delivering operational or strategic requirements.
📝 Peter Drucker's quote 'what gets measured, gets managed' emphasizes the importance of KPIs in managing performance.
🎯 KPIs provide targets to work towards and can engage and energize project teams.
🔄 KPIs can be statements of ultimate goals or proxy indicators measuring closely related achievements.
⏳ KPIs include leading indicators (progress) and lagging indicators (success post-completion).
✔️ Good KPIs have six main characteristics: objective evidence, measure the right things, link to strategic imperatives, track performance over time, track relevant metrics, and be SMART (Specific, Measurable, Achievable, Relevant, Trackable, Ethical, Supported, Time-bound).
❓ Creating good KPIs involves asking key questions about desired outcomes, influence, responsibility, measurement, review timing, achievement recognition, and understanding.
🏢 Large organizations like Tesla may focus on a single critical metric, but complex organizations benefit from multiple KPIs to measure progress, track issues, and drive project performance.

Q & A

What are Key Performance Indicators (KPIs)?
-Key Performance Indicators (KPIs) are quantifiable measures that help gauge the progress towards achieving specific business objectives or desired outcomes. They are crucial for tracking performance and guiding strategic decisions.
How do KPIs help in managing business performance?
-KPIs provide measurable targets that focus efforts on achieving strategic and operational goals. They allow organizations to monitor performance, make informed decisions, and ensure alignment with business priorities.
What is the significance of Peter Drucker's quote in the context of KPIs?
-Peter Drucker's quote, 'what gets measured, gets managed,' emphasizes that by measuring performance through KPIs, organizations are more likely to manage and improve their outcomes effectively.
What are proxy indicators in the context of KPIs?
-Proxy indicators measure elements closely related to desired outcomes that are difficult to quantify directly. They stand in for the actual objectives and help in assessing progress towards those goals.
What is the difference between leading and lagging indicators?
-Leading indicators predict future performance and show progress towards achieving goals, while lagging indicators measure the results after the work has been completed, reflecting past performance.
What are the six main characteristics of good KPIs?
-Good KPIs should: 1) provide objective evidence of progress, 2) measure the right things for decision-making, 3) link to strategic imperatives, 4) track performance changes over time, 5) focus on what matters to the organization, and 6) be SMART (Significant, Measurable, Achievable, Relevant, Trackable, Ethical, Supported, and Time-bound).
Why is it important for KPIs to be specific and measurable?
-KPIs need to be specific and measurable to provide clear, unbiased data on performance. This specificity ensures that progress can be accurately tracked and managed, avoiding subjective interpretation.
How can KPIs energize and engage project teams?
-KPIs provide clear goals and benchmarks, which can motivate project teams by giving them targets to strive for and a tangible way to measure their progress and achievements.
What questions should be asked to create effective KPIs?
-To create effective KPIs, ask: What are your desired outcomes? Why are these outcomes important? How can these outcomes be influenced? Who is responsible for each outcome? How can progress be measured? When will progress be reviewed? How will you know when the outcome is achieved? Who needs to understand the KPIs? What is the review process for the KPIs?
How does Tesla's approach to KPIs differ from that of large complex organizations?
-Tesla focuses on a single, critical metric that aligns with their core objective, while large complex organizations use a broader set of KPIs to track various aspects of their performance and address diverse priorities across different areas.
Why is it important to review and update KPIs regularly?
-Regularly reviewing and updating KPIs ensures they remain relevant and aligned with changing business goals and conditions. It helps in keeping the focus on current priorities and adapting to new challenges or opportunities.

Outlines

00:00

📊 Understanding Key Performance Indicators (KPIs)

This paragraph introduces Key Performance Indicators (KPIs) as the most important, quantifiable measures of progress toward desired outcomes. KPIs are linked to business portfolio, program, or project objectives, helping to focus work on delivering operational or strategic requirements. The famous quote by Peter Drucker, 'what gets measured gets managed,' highlights the importance of measuring performance to manage and achieve desired results. KPIs provide targets and can engage and energize project teams. They can be direct measures or proxy indicators for harder-to-measure goals. KPIs can be leading (predictive of future success) or lagging (reflective of past success) indicators.

05:01

📈 Characteristics of Good KPIs

Good KPIs have six main characteristics: 1) They provide objective evidence of progress, offering reliable numbers free from bias. 2) They measure the right things to inform better decision-making. 3) They link directly to organizational strategic imperatives, mirroring priorities. 4) They track performance changes over time to understand trends. 5) They measure important aspects like timeliness, efficiency, effectiveness, quality, governance, compliance, team behaviors, resource utilization, economics, financial performance, and overall project performance. 6) They are 'smartest': significant, measurable, achievable, relevant, trackable, ethical, supported, and time-bound. Creating good KPIs involves asking the right questions about desired outcomes, influence, responsibility, measurement, and review.

📌 Implementing KPIs in Large Organizations

This paragraph emphasizes the importance of KPIs in large, complex organizations for measuring progress, tracking progress, and highlighting issues. Tesla is mentioned as an example of a company that focuses on a single metric. Project managers can adopt the KPI process to drive projects and improve performance. The paragraph concludes with a call to action for viewers to like the video, subscribe to the channel, and hit the notification bell for more project management content.

Mindmap

Keywords

💡Key Performance Indicators (KPIs)

Key Performance Indicators (KPIs) are the most important quantifiable measures of progress towards an intended outcome. They are linked to the achievement of business, portfolio, program, or project objectives. KPIs help focus work on delivering operational or strategic requirements. For example, KPIs provide targets to work towards and can energize project teams by clarifying what is ultimately desired.

💡Objective Evidence

Objective evidence refers to reliable, unbiased data that measures progress towards desired outcomes. It is free from personal opinion or prejudice, ensuring accurate assessment. In the video, objective evidence is highlighted as a key characteristic of good KPIs because it provides dependable measurements that guide decision-making.

💡Leading Indicators

Leading indicators are measures that give insight into progress towards achieving goals before the outcomes are realized. They provide early signals of performance, helping to predict future success. The video explains that leading indicators help track whether the efforts are on the right path towards the desired outcomes.

💡Lagging Indicators

Lagging indicators measure the results after the work is completed. They provide information on the success of past efforts. The video mentions lagging indicators as tools to evaluate the effectiveness of completed work and understand if the objectives were achieved.

💡SMART Criteria

SMART stands for Specific, Measurable, Achievable, Relevant, and Time-bound. The video extends this to 'SMARTER' and 'SMARTEST,' adding criteria like Ethical and Supported. These criteria ensure that KPIs are well-defined and effective in tracking and achieving goals. For example, a SMART KPI for project performance might be 'completing milestones on schedule (Time-bound) with specified quality metrics (Specific and Measurable).

💡Proxy Indicator

A proxy indicator measures something that is closely related to the desired outcome but is easier to quantify. It stands in for the actual goal when direct measurement is difficult. The video mentions proxy indicators as useful tools for tracking related aspects that influence the primary objectives, such as using customer satisfaction surveys to gauge overall service quality.

💡Strategic Imperatives

Strategic imperatives are critical priorities that align with an organization’s long-term goals. Good KPIs should link directly to these imperatives to ensure that performance measurement supports the overarching strategy. The video emphasizes that KPIs need to mirror organizational priorities to be effective.

💡Trends in Performance

Trends in performance refer to the patterns and changes in performance metrics over time. Tracking these trends helps understand whether performance is improving, declining, or stable. The video highlights the importance of KPIs in monitoring performance trends to make informed decisions about future actions.

💡Project Performance

Project performance encompasses the efficiency, effectiveness, and quality of work in achieving project goals. It includes aspects like timeliness, compliance, and resource utilization. The video discusses how KPIs can track various dimensions of project performance, helping managers to identify areas for improvement and ensure successful outcomes.

💡Tesla's KPI Process

Tesla's KPI process is noted in the video as an example of focusing on a single, critical metric that matters most to the company. This extreme focus on one KPI simplifies tracking and highlights priorities. The video uses Tesla to illustrate how different organizations might adopt varying approaches to KPIs depending on their complexity and strategic needs.

Highlights

Key Performance Indicators (KPIs) are quantifiable measures of progress towards intended outcomes.

KPIs are linked to the achievement of business objectives, helping to focus work on delivering operational or strategic requirements.

Peter Drucker's quote emphasizes the importance of measurement in managing performance.

Performance indicators provide targets and can energize project teams.

KPIs can be statements of ultimate goals or proxies for harder-to-measure objectives.

KPIs can be categorized as leading indicators, showing progress, or lagging indicators, reflecting past success.

Good KPIs provide objective evidence of progress, free from individual bias.

KPIs should measure the right things to inform better decision-making.

KPIs must link directly to an organization's strategic imperatives.

KPIs should allow tracking of performance changes over time to understand trends.

Good KPIs track aspects such as timeliness, efficiency, effectiveness, quality, governance, compliance, and resource utilization.

KPIs should be SMART(est): Significant, Measurable, Achievable, Relevant, Trackable, Ethical, Supported, and Time-bound.

Creating good KPIs involves asking the right questions about desired outcomes, influence, responsibility, and measurement.

The process of creating KPIs includes defining outcomes, measuring progress, and reviewing achievement.

Organizations like Tesla focus on a single key metric, while complex organizations benefit from a range of KPIs.

Project managers can use the KPI process to drive and improve project performance.

Engagement with the video is encouraged through likes and subscription for more project management content.