KPI Performance Indicator

KPIs are non-financial measures of company performance, they have no monetary value but help generate the company’s profit. There is no single type of indicator, they must be studied on a case-by-case basis. A KPI (Key Performance Indicator), also known as a key indicator or performance measure, is a measure of the level of performance of a process. The value of the indicator is directly related to a target set in advance and is usually expressed in percentage values.

One way to measure an organization’s progress is to select and use the right metrics to align KPIs with business needs.

How to determine whether the performance is good or not?

To define good KPIs, it is necessary to determine the common strategic objectives of the company, while keeping in sight the operational objectives to be achieved. In order to choose the relevant measures, a single watchword: consistency.

Read also: How to create the right KPI (Key Performance Indicators)? How to determine whether the performance is good or not?

Examples can be given divided by company function and economic sector.

Accounting

• Percentage of overdue invoices
• Percentage of orders fulfilled early
• Percentage of orders placed after delivery
• Report error rate
• Average workflow time
• Number of duplicate payments

Here are some examples of financial KPIs:

• Rate of return
• Rate of return on assets
• Working capital requirements
• Product operating cycle
• Customer and supplier payment terms
• Late payment indicator
• Self-financing capacity
• Cash flow plan
• Return on investment
• Payment Blocked Rate

Commercial and marketing

• Acquisition of new customers
• Customer acquisition cost
• Average contract size
• Demographic analysis of potential customers
• Status of existing customers
• Loss of customers
• Revenue generated by segments of the customer population
• Customer profitability by demographic segment

Many of these indicators are managed with special customer relationship management software.

Manufacturing sector

In the manufacturing sector a set of indicators called Overall Equipment Effectiveness is used which represent a non-financial measure of efficiency. The main ones are as follows:

• OEE = availability x performance x quality
• Availability = run time / total time
• Down time
• Performance = total count / target counter
• Quality = good count / total count
• Cycle time ratio (CTR) = standard cycle time / real cycle time
• Capacity utilization
• Rejection rate

Professional Services

Most professional services firms use three key indicators:

• Usage rate
• Profitability of the project
• Project success rate

Computer systems

• Availability / uptime
• Mean time between failure
• Mean time to repair
• Unplanned availability
• Unplanned downtime
• Average time to repair

Sales Management Consulting at AB Consultant

Sales KPIs

This involves mastering the competencies, processes and management within sales organizations with the aim of achieving sales objectives.

• Financial indicators
• Operational indicators
• Customer satisfaction indicators
• Employee satisfaction indicators
• Commercial knowledge
• Commercial skills
• Commercial attitude
• Commercial culture
• Sales process competencies
• Sales management competencies
• Sales support systems
• Sales strategies
• Collaboration between sales and other business functions

Payroll and Human Resources Management

Human Resources Management

• Sickness absence of employees (e.g. number of hours lost/number of planned working hours in total in a given period)
• Employee turnover (voluntary departures)
• Employee satisfaction level
• Number of training hours per employee per year
• Number of overtime hours
• Working time efficiency
• Average duration of the recruitment process (filling a job position in the company) in days
  average time to reach the assumed productivity, quality level, etc.
• Number of hours lost as a result of accidents at work to the number of hours worked in the company in the last 12 months
• The number of so-called near miss accidents
• % of employees trained in first aid
• The results of health and safety audits
• Number of hours worked by employees for the local community
• The number of reported defects (red tags) by the employee

What are the main production KPIs?

The choice of production KPIs to reference may vary from company to company. However, we are going to find some common among all of them due to the special importance they have when carrying out data analysis and evaluating the results obtained.

• Production cycle time:

It allows you to measure the time it takes to produce a given product. For this, the moment in which the production order is executed is taken as the initial reference and the moment in which the product in question can be considered completed as the final reference. The time that elapses between one moment and another is the production cycle time of each product.

• Quality performance

In this case, the production KPI focuses on analyzing the percentage of products that are manufactured without errors. That is, the number of products that, at the end of the production chain, are perfect from the point of view of the company’s quality standards.

• Rejection rate:

The rejection rate is a KPI that measures the products that do not meet the determined quality standards. In other words, it is the KPI opposite to quality performance, since, in this case, what is measured is the quantity of products that are eliminated from the supply chain before completing their production.

• Return rate:

It refers to the follow-up of the product once the production has been completed. However, it is essential to take it into account to adapt production and reduce the rate of returns, since it directly determines the level of customer satisfaction. A high rate of returns when the product meets the determined quality standards is usually associated with an ineffective design or an inability of the product to meet consumer expectations, which is why, in many cases, it will be necessary to reformulate the production from scratch. beginning.

Maintenance process

Maintenance Key Performance Indicators (KPIs) are metrics that assess factors critical to an organization’s success. A wide range of companies track KPIs. However, in the world of maintenance, these metrics monitor performance against targets tied to things like machine failures, repair times, maintenance delays, and costs.

What are the main maintenance indicators?

This KPI is a metric used to quantitatively evaluate the performance of a certain activity, asset or department. Indicators can be divided into two categories:

• • Those that highlight the effect of maintenance on business performance
  • Those that are associated with the reliability and availability of assets. From this categorization, we can highlight the main KPIs: downtime; back log; MTBF; MTTR; OEE; PMP (planned maintenance percentage/planned maintenance rate) and preventive maintenance compliance rate. Next, we will explain their respective functions, benefits and what are the global average patterns for each of the indicators.

• Downtime 

This maintenance metric, also known as Equipment Downtime, can be used to track, monitor, and evaluate the reliability of an asset. Downtime corresponds to unscheduled downtime. That is, it is the result of an unforeseen event that will require some type of intervention. This KPI can be evaluated, regardless of whether or not a maintenance schedule already exists for the equipment.

• Backlog 

The backlog is a time indicator that can be translated as “maintenance delay”. It represents the accumulation of pending or running activities, for each technician or employee, regardless of whether they are already underway or still only planned. In other words, the Backlog is the service time necessary to carry out a certain Corrective, Preventive or Predictive Maintenance action; Quality Inspections; Improvements or any other activity for the proper functioning of the assets.

• MTBF

Mean Time Between Failures Another important maintenance performance indicator is the MTBF, also known as the Reliability Indicator. It measures the rate of random (unplanned) failures, even if they are caused by software failures or manufacturing defects that compromise its useful life. Faults that do not cause downtime are excluded.

• MTTR – Mean Time To Repair

An equally common maintenance indicator is the Mean Time to Repair (MTTR), which can be applied to a piece of equipment, machine, component or system. The MTTR considers the average time it takes your technical team to intervene or solve a fault after it has occurred. Unlike the MTBF, the goal is to minimize this maintenance KPI. In a way, the reduction in MTTR serves as a trigger to make decisions that improve your maintenance strategy, always with the aim of maximizing benefits and reducing risks.

• OEE – Overall Equipment Effectiveness

This is one of the most important maintenance KPIs as it measures the overall effectiveness of the company. With this calculation it will be possible to establish if the processes are efficient or not. One of the benefits of calculating OEE is knowing how often equipment is running. It also helps us to know how quickly the company’s production is developing and, finally, how many products (or services) have been produced (or carried out) without any type of failure.

• PMP – Planned Maintenance Percentage

The Planned Maintenance Percentage considers the time spent on scheduled activities (whether maintenance, repair or replacement) with the defined assets. This measurement is directly associated with a company’s Preventive Maintenance Plan. The effectiveness is considered, the way in which each activity has taken place, as well as the time necessary to complete it, the result of the PMP will indicate the degree of efficiency of a company, as well as its performance and success in the market sector in which it operates.

• Preventive Maintenance Compliance Rate

This metric could not be missing from a list of the main maintenance performance indicators. Analyzes the company’s compliance with the established schedule.

Mesure your performance indicators that quantify the overall performance of the company in relation to the relevant global goal or critical success factor.

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Implementations of KPI

An effective KPI program in a company should meet the following conditions:

• Organization’s strategy

The starting point for the selection of indicators should be the organization’s strategy: indicators should concern issues that are important for the company, respond to its needs and problems, and be adapted to its situation and the specificity of the sector in which it operates.

• Not exceeding 20 measurements

The number of indicators should not exceed 20 (the aim of the KPI program is not to measure everything, but to create an effective tool for monitoring and managing results).

• Include only the most important and critical processes/functional areas

KPIs selected for the program should take into account the most important processes/functional areas of the company; financial ratios should be a minority. For example: finance, sales & marketing and operations. Read also: Success of Your Business Depending on Finance, Sales Marketing and Operations

• It must have a numerical target for the year

Each performance indicator must have a numerical target for the year. The starting point should be the results achieved by the organization in previous periods and benchmarking the best, similar organizations in the sector.

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• Goals should be raised in subsequent period

Goals should be raised in subsequent periods, which stimulates continuous improvement activities.
Indicators that may “compete” with each other should be excluded (e.g. the value of inventories of finished products and the timeliness/completeness of deliveries to the customer in the manufacturing company).

• Only metrics on which employees have a real impact should be selected

As many KPIs as possible should have a direct impact on meeting the needs, expectations and level of customer satisfaction; metrics that relate solely to the organization’s internal processes and needs should be in the minority.

• Used only to calculate outcomes

KPIs should be used to calculate outcomes for which the necessary data exist or can easily be collected (the costs of collecting the data must not exceed the benefits of using the indicator).

• Should be simple, precise and understandable

KPIs should be simple, accessible and precisely defined (all employees must understand them, the possibility of manipulating the results must be excluded).

• The definitions should not be changed without a valid reason

KPI definitions should not be changed without a valid reason, as this makes it difficult to compare results between periods.

• Employees must be familiarized with the definitions of KPIs

Employees must be familiarized with the definitions of KPIs; they need to understand the indicators and how they are calculated.

• The use of KPIs must give rise to responsibility

The use of KPIs must give rise to responsibility – each indicator should have its own owner.

• Employees must regularly and as soon as possible receive feedback on the results

Employees must regularly and as soon as possible receive feedback on the results measured by KPIs for the next period (waiting too long for results demotivates and delays the implementation of improvement actions, making the KPI program ineffective).

• Should be included in the goals of individual middle and senior managers

The KPI program should be linked to the company’s remuneration/bonus system, and the numerical targets assigned to the KPI should be included in the goals of individual middle and senior managers and be verified during periodic evaluations.

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Essential KPIs, Formulas and Definitions for: Financial Business, Marketing, Sales, Customer Service, Search Engine Advertising, Emailing, or HR Systems

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Sources: CleverlySmart, PinterPandai, Seobility, Klipfolio, Investopedia

Photo credit: PublicDomainPictures via Pixabay

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