Objectives of Key Performance Indicators

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A key performance indicator might let a business know that a weakness exists.
A key performance indicator might let a business know that a weakness exists. (Image: red traffic signal light image by Flashon Studio from <a href='http://www.fotolia.com'>Fotolia.com</a>)

Business key performance indicators (KPIs) have various objectives related to business activities, like identifying business strength when sales exceed projections. Computer applications known as dashboards present KPI measurements in graphical forms, such as a traffic light. For example, a dashboard displays a red traffic light when monthly sales dip below expectations. If monthly sales are meeting expectations, the light turns yellow. However, the light turns green if monthly sales exceed expectations.

Strengths

One objective of KPIs is to identify business strengths. Therefore, managers evaluate KPI measurements and determine which KPIs reflect business success, such as current sales exceeding expectations. A manager might review KPIs for individual salespeople to identify individual strengths, like the ability to close sales transactions. In addition, a KPI might reveal that support staff provides excellent customer service.

Weaknesses

Another objective of KPIs is to identify business weaknesses. For example, a manager reviews the related sales KPIs pertaining to a salesperson’s effectiveness, such as the number of sales contacts made compared to the number of sales finalized. When this reveals that this salesperson consistently fails to close sales transactions, the manager might decide to take steps to increase sales closures for this individual.

Planning

An additional objective of KPIs is to determine necessary planning. Based on business strengths and weaknesses, managers develop plans to increase strengths and eliminate weaknesses. For example, KPI measurements that reflect successful sales activities might reinforce the need for continued sales training related to a group of sales KPIs. In addition, managers might increase the training budget to provide additional sales training for poorly performing sales staff.

Corrective Action

The final objective of KPIs is to determine corrective action to take related to business activities, such as increasing the number of customer service staff when a KPI reveals that customers complain about long wait-time during telephone calls to customer service. However, a manager might reduce staff when a KPI reveals that customer complaints related to telephone wait-time compared to the number of customer service staff indicates that wait-time per staff member is virtually non-existent.

Considerations

KPIs relate to different work levels, such as individuals, work groups and departments. Each KPI has a goal that is unique to the related business industry and activity. An organization must identify and prioritize appropriate matrices related to each KPI. For example, individual sales KPIs have less priority than a business’s total sales KPIs. However, the synergy of all individual sales KPIs must be considered when evaluating business success.

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