An HR Glossary for HR Terms

Key Performance Indicators

What is Key Performance Indicators (KPI)?

Key Performance Metrics (KPIs) are quantifiable indicators used to assess and measure an organization’s progress toward a specific goal. They serve as targets for companies to aim for, and can provide insights on performance to help guide decision-making.

Why are KPIs important?

KPIs serve as crucial instruments for organizations seeking to:

  • Gauge performance internally and against industry standards
  • Identify trends over time
  • Promote accountability within teams
  • Make data-driven decisions

What are the types of KPIs?

KPIs can be classified into two main types: financial and non-financial. 

Financial KPIs focus on monetary metrics that provide a snapshot of an organization’s economic health and success. Common measures include revenue, profit, and return on investment (ROI). Non-financial KPIs focus on metrics that help with understanding the holistic health of an organization. These include measures such as customer satisfaction, employee engagement, inventory turnover, social media engagement, and more.

What are the characteristics of effective KPIs?

  1. Simple: KPIs that are straightforward and easily understood can help employees make better, more confident decisions toward achieving that goal.
  2. Relevant: A good KPI should tie into the overarching goals and objectives of the organization. It’s also important that the right individuals manage the right metrics. For example, a sales manager will be more concerned about tracking revenue numbers than an HR manager, who might be more concerned about employee productivity and turnover rates.
  3. Aligned: KPIs should align with the broader mission and strategies of the organization. Having a common short and long-term focus will enable teams to work more cohesively towards shared objectives.
  4. Measurable: Each department will have its own measure of success. However, a good KPI will address both the quantitative and qualitative measures of a specific goal. 
  5. Timely: To be effective, KPIs must be timely in two ways. First, they should specify a time period over which progress is measured. Second, they should be analyzed frequently to ensure stakeholders stay up-to-date with the latest data trends. 
  6. Achievable: Realistic and attainable targets can motivate teams to strive towards those goals. It’s best to set small and continuous goals rather than challenge employees with large and seemingly unattainable targets. 

What are some best practices for implementing strong KPIs?

  • Ensure KPIs directly align with organizational objectives and strategies
  • Review, assess, and adapt KPIs regularly 
  • Use industry benchmarks to compare KPI standards of similar organizations and identify areas for improvement

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