Below you will find some frequently asked questions about KPIs and my answers to those questions. Feel free to ask more questions in the comments in the end of this article.
“We are doing fine without any KPIs; do we need some?”
It’s like using a GPS in your car. When you drive the route that you are used to driving every day, then most likely you won’t turn a GPS on. Does it mean that you don’t need it in more complex situations, like for example, trying to find some street or checking out the latest traffic information? The same can be said about KPIs, the more complex your business environment is, the more you need good KPIs. You can find more examples in this article.
“Is “Implement new HR training program within 1 year” a good goal? Does it need a KPI?”
The goal in this case sounds more like a milestone or an action goal. In the end of the year one can give a “yes/no” answer to the question whether the program was implemented or not. The way that the goal is formulated now doesn’t imply an achievement of any performance results, so there is no sense in using key performance indicators. If you would focus on improving the efficiency of HR training programs, or reducing of the operational costs, then this could be a good performance goal, and respectively there can be used performance indicators.
“Is “Improve employee morale by 15%” a good goal? What KPI would you suggest for it?”
There is a known mantra that goals need to be specific and measurable, that’s why many of the goals incorporate the measurement part. That’s one of the possible approaches, but personally I prefer to divide the goal part and the measurement part. The goal in this case is to “Improve employee morale.” A morale index might be used a as a metric. Formulated in this way it makes much more sense.
“Is “Double employee productivity” a good goal? Do we need a KPI for it?”
Many companies have such goals on their scorecards in order to motivate their staff. For my opinion goals like this one have two major flaws:
- The goal is unrealistic: why exactly do we need to double the productivity; why not increase it by 10% or 30% or by 12.75%?
- It is not clear how to measure the productivity for tasks like marketing, software development, copywriting…?
“Do we need a software for our scorecard?”
It depends on how serious you are about KPIs. If you need to maintain KPIs in several perspectives, calculate their performance, take into account their relevant importance, visualize them on strategy maps, then I would go for some professional software.
I know some Excel gurus who can create a real state of the art scorecard, but the question is how hard is to maintain those scorecards. A freeware BSC Designer Light might be a good starting point.
“Is a KPI that I have “leading” or “lagging” one?”
These terms are contextual, one KPI is leading or lagging only in the context of a certain business goal, therefore in many cases there is a no clear difference between “leading” and “lagging.”
“What is a correct term: KPI, metric or indicator?”
When talking about terminology there is a difference. And for sure, it is a good idea to understand this difference and use the correct terms in each case. A practical experience; however, shows that the term “KPI” is used interchangeably. A minor metrics might be called a “KPI” and adds some confusion. To stay on the safe ground, I’d use “metric” or “indicator” as terms.
“What KPI template do you recommend?”
Actually, none of them. There are some popular industry-standard KPIs, yes, they look very professional and they might be a good starting point, especially if your boss just wants you to “find some KPIs.” But the impact of a few tailor-made KPIs designed by your team for your business goals is much higher than the impact of 50+ KPIs found on the Internet.
“It feels like my team doesn’t accept new KPIs… Why?”
Two most typical reasons are:
- Those KPIs are not aligned with real business problems.
- The KPIs are not the product of the discussion.
“My employee allowed a KPI to move to the red zone. How should I react as a manager?”
In my opinion this situation is a chance to start a discussion about what can be done better in the future. That’s why we have KPIs: to understand our business better, to prevent problems in the early stages.
“How do we cascade KPIs across the company?”
While many automation softwares (including BSC Designer) support cascading by indicators, it makes much more sense to cascade business goals, and only then find relevant indicators for each level. We’ve discussed this in detail in this article.
“Do you recommend to use KPIs for bonus calculation?
If you do it to control your team in a “carrot-and-stick” style, believe me, they are cleverer than you are and they will find some ways to game the system. We have discussed possible approaches to this task in the previous article.
“What number of KPIs do you recommend to have on a scorecard?
If you passed though the steps described above, just a few KPIs will survive the process. Other will be deleted, or moved to the scorecards of the teams or individuals that work specifically on that problem. A good formula to have in mind is 1 business goals = 2 metrics (one leading/predictive and one lagging/result).
“We have 40+ metrics that we track only for marketing. What we are doing wrong?”
Nothing wrong with this, but I guess most of those metrics are not key performance indicators. Those are operational metrics. Getting back to the car analogy, you are checking all you see on the dashboard: oil level, engine temperature, traveled distance, the state of safety belt, and so on. Indicators are important, but when your goal is to get from point A to point B (execute a business strategy), then you need to focus your attention on a few KPIs. And the steps of the system help you to find those KPIs among many possible metrics.
“If you could give only one bit of advice about KPIs, what would you suggest?”
Create and carefully maintain a proper measurement culture in your organization!