KPI’s help a business define and measure progress towards operational goals. Once a business has established its mission, identified all of its stakeholders and defined its goals, it needs a way to measure progress towards those goals. KPI’s are those measurements.
KPI’s are quantifiable measurements, agreed to beforehand, that reflect the critical success factors of a business. They will differ depending on the type of business. One business may have as one of its KPI’s, the percentage of its income that comes from returning customers. Another might have its KPI’s as the value of its monthly sales and its rate of gross profit. Another might have one of its goals as “to be the most profitable company in our industry”. They will have a KPI that measures pre-tax profit and Shareholders funds.
If a KPI is to be of any value, there must be a way to accurately define and measure it. It is important to stay with the same definition from year to year. Also, there needs to be a target for each KPI so that everyone understands the business goals and how the current performance compares with that target.