Key Performance Indicators are metrics that track progress in achieving organizational goals. KPIs typically are tied to objectives, which lead up to corporate goals and strategy. Effective KPIs are simple, easily reported, widely understood and meaningful. Interesting does not make a KPI.
Management teams consistently celebrate and pay lip service to the idea of KPIs, but they often fail to effectively establish and apply them. This failure sometimes results from unclear corporate strategy. KPI problems can also stem from a failure to apply the necessary discipline and investment in intelligence, analysis and reporting. Making matters worse, there is a common trap many managers fall into: reporting a litany of metrics that do little more than indicate that a lot of activities are going on in the organization.
In the end, ineffective KPIs become distractions and counterproductive efforts. They're not benign; they cause harm. The worst part is that many managers often don't realize it.
That's where the KPI litmus test comes in. It's simple:
1. Define your corporate goals.
2. Define your key objectives tied to those corporate goals.
3. Define your KPIs -- the metrics that indicate progress and achievement toward those objectives.
4. Finally, ask: Do your KPIs blatantly inform your decision to continue or change course?
If your answer is yes, your KPIs are probably valid.If the answer is no, it's time to go back to the drawing board.