How to Identify KPIs in 4 Steps

KPI stands for Key Performance Indicator. Key Performance Indicators are connected to your goals and objectives—they are quantifiable, outcome-based statements that outline and measure your organization’s most important outputs.

This article explains how to develop and identify KPIs for your strategic plan.

KPIs tell you what you want to achieve and by when you want to achieve it. A good plan will include 5-7 KPIs to manage and track the plan’s progress.

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Why Do I Need to Identify KPIs?

KPIs are the heartbeat of your performance management process. They are the metrics that tell you whether you are making progress in accordance with your strategy. This means you’re going to work with KPIs a lot, which is why you need to make sure they work well for you. This article will give you the basic guidelines you need to not only know how to identify KPIs, but also how to set up tracking for your KPIs so that they work for you successfully.

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How to Identify KPIs & Set Up Tracking

Step 1: Structure your KPIs based on measures that contribute directly to your organization’s annual objectives.

In thinking about how to identify KPIs that will work for your organization, there are five primary components to consider:

1. Your first step is to look at your organization’s objective and identify a measure, or quantifiable marker, of where you are now.
   You’ll want to make these measures as expressive as possible. For example, “number of new customers” is fine, but identifying the number of new customers within a given timeframe or the number of new customers for a particular product or strategy is better.
2. Next, you’ll need to identify a target, a numerical representation of where you want to be with this objective. This should be directly comparable to the measure indicating where you are now. It should also include a time period by which you want to achieve the goal.
3. It’s common to have many different places where you are tracking data, so each KPI needs a clearly identified data source. You need to be able to easily, quickly, and objectively identify where and how this information is being tracked.
4. Then, you’ll need to determinethe frequency, or how often you will be reporting on this KPI. Ideally, this will be at least monthly. However, different KPIs will have different timelines that are appropriate.
5. Finally, like any good goal, each KPI needs to havean owner. You need to know who is in charge of tracking and strategizing with this KPI.

As you determine the indicators you want to track, keep in mind that you can measure raw numbers (number of new customers, for example), progress (like the percent completion of a goal), or change (for instance, percent increase in sales). Tracking progress or change do a better job of telling a story with numbers than just, rigid counting, or tracking raw numbers.

You’ll also want to consider that there are leading and lagging measures.

• Lagging indicators, such as a percent increase in sales, measure outcome—what has already happened. Therefore, they “lag” behind your performance.
• Leading indicators help show whether you are on track to hit your target. They focus on the future and give you clues about what you can expect. For example, a KPI that includes your cost of operations can be a leading indicator that predicts decreases in profits if certain costs increase. Similarly, a KPI that measures the success of your website will likely indicate upcoming increases in sales.

Pro Tip:

We recommend a combination of leading and lagging indicators. Try to split them evenly if you can.

Step 2: Evaluate the quality of your new KPIs.

Again, it is important that the KPIs you choose to track and measure your progress are ones that work well for your organization. Here are some questions to consider that will help you determine how to identify KPIs that will best reflect your progress against your strategy:

• Is this KPI easily quantifiable? If you can’t measure this variable numerically, it will be very difficult to objectively identify progress toward a goal.
• Is this KPI within our control? Can we drive change in this KPI? Your KPIs will only be as useful as you can use them. If they measure external factors rather than ones that you can control, then they won’t tell you what you need to do to achieve your targets.
• Does this KPI connect directly to our objective as well as overall strategy? Your KPIs are meant to track not just your outputs, but how you are measuring up to the goals you have set for your organization. You want to choose KPIs that are directly relevant to those objectives.
• Is this KPI simply defined and understandable? Remember that you are going to be working with this KPI at least monthly (in some cases, weekly or even daily). It needs to be something you can conceptualize and communicate, not only for yourself, but for everyone in the organization who will be working with this KPI.
• Can this KPI be measured with accuracy and timeliness? Sometimes the trickiest part of identifying a KPI is setting up processes to collect accurate and consistent data for it. KPIs can only be useful if they are accurate, and as we’ve discussed, they need to be reported regularly (at least monthly). This needs to be part of the consideration as you are identifying your KPIs and how you will measure them.
• Do our KPIs give a broad range of perspectives on our organization’s success? For example, do you have measures to reflect your progress not only among customers, but also in your organization’s finances, internal processes, and learning and growth?
• Will this KPI remain relevant? For consistency and stability in tracking your progress, try to choose KPIs that will serve your organization for the foreseeable future.

Step 3: Assign ownership for each KPI to specific individuals in the organization.

You need to know where the ball stops. You also want individuals within your organization to feel invested in its success, and ownership of a KPI encourages this kind of positively motivated accountability.

Who in your organization is best equipped to track, interpret, and report on this KPI? Assign responsibility and make sure that expectations are clear, and individuals have the resources to accurately and consistently track these KPIs, as well as a way to communicate them to leadership, other staff members, or other stakeholders as necessary.

Step 4: Monitor and report on the KPIs regularly and transparently.

Identifying and setting up tracking for each of your KPIs is important initial work to developing your strategy. Moving forward, you will need to determine not only—as mentioned above—how often you will track each one, but also how you will report on them. You might take time in your weekly staff meetings to report on KPIs, for example.

You will need to determine the best way to monitor and report on these KPIs so your entire organization knows where you are and where you want to be in terms of your organizational strategy. You want everyone to see how their work contributes to organizational objectives.