One of the main factors affecting the profitability of any company is the productivity of its staff. If a business or organization’s monthly revenue has worked “in the plus” and suffered a significant loss in another month, there are specific, measurable reasons for this. One of them can be considered – ineffective performance of managers and salespeople. In large companies, it is physically difficult to track the quality of labor of each employee. Who is just sitting around, and who is working “for two”? Who should be paid a bonus or bonus, and who should be fired because of incompetence? To answer these questions, a special KPI metric is used, which numerically reflects the result and quality of actions for a certain period of time. Why is it needed and what does it mean? How is it applied in practice? Let’s try to understand and tell you about the economic importance of this coefficient.
The abbreviation KPI stands for Key Performance Indicator. This value demonstrates the effectiveness in achieving the set tasks and goals. It is used to track a variety of goals and objectives:
Key Performance Indicator index is effective in various business areas – from construction and decoration of apartments to management, promotion of the released product or sales. Sometimes this principle is used to evaluate the fulfillment of a plan according to a certain planning criterion. This scheme is also called “management by objectives”.
Using this indicator of productivity and efficiency, it is possible to measure and calculate how much financially justified the efforts spent on the creation, release, promotion and advancement of the product, and what the result is in the end. The method is necessary to fulfill the following tasks:
KPIs are taken into account only if they have a direct impact on business processes or the functioning of the company as a whole. Brief examples: failure to fulfill the quarterly sales plan or a decrease in the value of orders entails a decrease in the company’s profit. A small number of likes in VK or other social networks, the number of content views does not belong to these categories, except in situations where these indicators are key for the company. But, as a rule, this is very rare.
Personal observations and control by a manager are not always enough to justify a fair and objective assessment of personnel. Using key performance indicators, it is possible to get the most complete picture of the activity of each employee and the division as a whole. The system allows:
The use of KPI methodology helps to develop the most transparent and honest system of personnel incentives, where the amount of material remuneration or lack thereof is directly related to the quality of the performer’s work. The availability of verified, confirmed, recorded data or a report on the work performed will prevent the possibility of unjustified nagging from superiors.
There are also minuses to this business technology:
In general, it can be noted that this method of assessment is more suitable for a stable established business with a formalized structure. It is difficult to use it in start-ups, as they are only going through the initial stages of forming business processes. Besides, in small companies, employees usually have no problems with motivation. They actively communicate with each other, understand where they are aiming and what they want to achieve.Differences between KPIs and OKRs
As an alternative to key performance indicators, the concept of OKR (Objectives and Key Results) is sometimes used to motivate employees, which is a comprehensive goal-setting system consisting of two main elements:
In essence, these two tools are very similar to each other. The difference between them lies in the nature of the tasks to be performed:
|Suitable for stable companies with structured, stable processes. This method of assessment is somewhat similar to a to do sheet. Each team member sees his tasks, knows what to do to accomplish them, and simply works in a regular mode.
|It implies greater freedom of action. For example, when launching a new product and promoting it on the market. Because of the vague wording, it is more difficult to set KPIs here. But it is quite possible to define the checkpoints that need to be passed in the course of working on a task.
The OKR technique is not suitable for all teams. There is often misunderstanding and resistance when trying to implement this metric to evaluate the performance of rank-and-file personnel. Not everyone is ready to set ambitious goals. For others, the feeling of freedom of action drives them into a real stupor. Therefore, when choosing a motivation system, it is absolutely necessary to calculate what is better in this case: KPI or OKR.
Initially, this methodology was used exclusively in the trade sector, where it was not necessary to perform complex calculations in order to clarify the performance of each department or employee. Key Performance Indicator was determined by the number and total amount of sales. Currently, the system is implemented almost everywhere. In different areas of business, their own metrics are used. Conditionally, the classification of key performance indicators is divided into two large groups:
KPIs are divided into internal and external KPIs according to their scale and sphere of influence. The first ones are used to assess the company’s internal achievements. This category includes product quality criteria, staff turnover, the size and list of advertising costs, and other criteria directly related to productivity growth. With their help, the business can forecast results and set new goals.
External indicators are a summarized expression of the results of the activities of the business units responsible for achieving the company’s overall goals. For example, expanding its target audience or entering the international market.
There is also a division of KPIs into absolute and relative metrics. Relative metrics interact with each other and other metrics, and are expressed in percentages or fractions.
Absolute indicators exist in isolation and are not compared to anything. Example: the amount of net profit for the sale of office supplies in thousand rubles or the company’s net profit for September. They have a numerical expression.
Different industries have their own specific metrics that determine a company’s performance and efficiency.
The indicators valid in this area are not related to personnel activities. To calculate them, data obtained from end-to-end analytics is used. Usually Google Analytics are used for this purpose. The indicators include:
This is where the quantity and quality of work performed is assessed. The following indicators are considered:
When implementing a KPI system, it is important to take into account the current situation of the company. It is not necessary to restructure the entire operation of the company. It is better to start with a separate division, for example, sales or sales. The process of introducing new evaluation metrics is greatly simplified by the presence of a CRM-system, which is used by all managers. In most cases, these software products already contain indicators that can be used to determine the efficiency of any business.
To set KPIs correctly, managers should answer the questions:
To get the best result when implementing the system, it is important to follow the following rules:
For the calculation, you can create a KPI matrix in Excel, Google tables or other convenient program, taking into account the following data:
After filling in the appropriate boxes, calculations are performed using the formula:
KPI = ((Fact-Base)/(Norm-Base)) * 100%
Management has implemented key performance indicators in the sales department with a minimum number of deals: 200, and a target of 250. The manager successfully closed 270 during the reporting period. His KPI calculation would look as follows:
((270 – 200)/(250 – 200)) * 100% = 140%.
Despite the transparency and accuracy of this assessment tool, some managers have problems implementing KPI systems in sales, internet marketing, manufacturing or other areas of business. Usually associated with making the following mistakes:
Regular monitoring of personnel and assessment of their performance brings great practical benefit to the company and its employees. Contractors clearly know what benefits they will receive if they successfully complete their assigned tasks. The business gets a professional, motivated team.
The LeaderTask electronic assistant is a convenient tool for planning and managing the company. In the application you can set tasks for your subordinates and colleagues, control the quality and deadlines of their fulfillment. Store important information about clients. Evaluate the performance and efficiency of the personnel working on the project.
A couple of clicks are enough to set a task, determine its deadline, and assign responsibility for its implementation. For clarity, large tasks can be broken down into smaller subtasks. This will help you keep all the important information and not lose sight of anything.
You can evaluate the performance of each performer on a graph or use detailed statistical information related to the project for analysis.
The application functions on all digital platforms, there is synchronization between all devices. It does not require an internet connection.
Every manager has the right to decide whether it is necessary to implement key performance indicators in their company. This process does require time, financial and other costs. But, if it is successfully completed, you will receive significant benefits for the development and growth of your business. You will be able to show additional attention to conscientious employees and get rid of lazy and procrastinators who are ballast for the company.