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Performance indicator
A performance indicator or key performance indicator
(KPI) is a type of performance measurement.[1] KPIs evaluate
the success of an organization or of a particular activity (such
as projects, programs, products and other initiatives) in which
it engages.[2] KPIs provide a focus for strategic and operational
improvement, create an analytical basis for decision making
and help focus attention on what matters most.[3]
KPI information boards
Often success is simply the repeated, periodic achievement of
some levels of operational goal (e.g. zero defects, 10/10
customer satisfaction), and sometimes success is defined in terms of making progress toward
strategic goals.[4] Accordingly, choosing the right KPIs relies upon a good understanding of what is
important to the organization.[5] What is deemed important often depends on the department
measuring the performance – e.g. the KPIs useful to finance will differ from the KPIs assigned to
sales.

Since there is a need to understand well what is important, various techniques to assess the present
state of the business, and its key activities, are associated with the selection of performance
indicators. These assessments often lead to the identification of potential improvements, so
performance indicators are routinely associated with 'performance improvement' initiatives. A very
common way to choose KPIs is to apply a management framework such as the balanced scorecard.

The importance of such performance indicators is evident in the typical decision-making process
(e.g. in management of organisations). When a decision-maker considers several options, they
must be equipped to properly analyse the status quo to predict the consequences of future actions.
Should they make their analysis on the basis of faulty or incomplete information, the predictions
will not be reliable and consequently the decision made might yield an unexpected result.
Therefore, the proper usage of performance indicators is vital to avoid such mistakes and minimise
the risk.[6][7]

KPIs are used not only for business organizations but also for technical aspects such as machine
performance. For example, a machine used for production in a factory would output various
signals indicating how the current machine status is (e.g., machine sensor signals). Some signals or
signals as a result of processing the existing signals may represent the high-level machine
performance. These representative signals can be KPI for the machine.

Categorization of indicators
Key performance indicators define a set of values against to which measure. These raw sets of
values, which can be fed to systems that aggregate the data, are called indicators. There are two
categories of measurements for KPIs.

Quantitative facts presented with a specific objective numeric value measured against a
standard. Usually they are not subject to distortion, personal feelings, prejudices, or
interpretations.

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Qualitative represents non-numeric conformance to a standard, or interpretation of personal

feelings, tastes, opinions or experiences.
An 'indicator' can only measure what 'has' happened, in the past tense, so the only type of
measurement is descriptive or lagging. Any KPI that attempts to measure something in a future
state as predictive, diagnostic or prescriptive is no longer an 'indicator', it is a 'prognosticator' – at
this point, it is analytics (possibly based on a KPI) but leading KPIs are also used to indicate the
amount of front end loading activities.

Points of measurement
Performance focuses on measuring a particular element of an activity. An activity can have four
elements: input, output, control, and mechanism. At a minimum, activity is required to have at
least an input and an output. Something goes into the activity as an input; the activity transforms
the input by changing its state, and the activity produces an output. An activity can also enable
mechanisms that are typically separated into human and system mechanisms. It can also be
constrained in some way by a control. Lastly, its actions can have a temporal construct of time.

Input indicates the inputs required of an activity to produce an output.

Output captures the outcome or results of an activity or group of activities.
Activity indicates the transformation produced by an activity (i.e., some form of work).
Mechanism enables an activity to work (a performer), either human or system.
Control is an object that controls the activity's production through compliance.
Time indicates a temporal element of the activity.

Identifying indicators
Performance indicators differ from business drivers and aims (or goals). A school might consider
the failure rate of its students as a key performance indicator which might help the school
understand its position in the educational community, whereas a business might consider the
percentage of income from returning customers as a potential KPI.

The key stages in identifying KPIs are:

Having a pre-defined business process (BP).

Having requirements for the BPs.
Having a quantitative/qualitative measurement of the results and comparison with set goals.
Investigating variances and tweaking processes or resources to achieve short-term goals.
Key performance indicators (KPIs) are ways to periodically assess the performances of
organizations, business units, and their division, departments and employees. Accordingly, KPIs
are most commonly defined in a way that is understandable, meaningful, and measurable. They
are rarely defined in such a way that their fulfillment would be hampered by factors seen as non-
controllable by the organizations or individuals responsible. Such KPIs are usually ignored by
organizations.

KPIs should follow the SMART criteria. This means the measure has a Specific purpose for the
business, it is Measurable to really get a value of the KPI, the defined norms have to be Achievable,
the improvement of a KPI has to be Relevant to the success of the organization, and finally it must
be Time phased, which means the value or outcomes are shown for a predefined and relevant
period.[5]

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KPIs should be set at a senior level within an organization and cascaded through all levels of
management.[8] In order to be evaluated, KPIs are linked to target values, so that the value of the
measure can be assessed as meeting expectations or not.

Key performance indicators are mostly the non-financial measures of a company's performance [8]
– they do not have a monetary value but in a business context they do contribute to the company's
profitability.[9]

Examples

Accounts
These are some of the examples:

Percentage of overdue invoices

Percentage of purchase orders raised in advance
Number of retrospectively raised purchase orders
Finance report error rate (measures the quality of the report)
Average cycle time of workflow
Number of duplicate payments

Marketing and sales

New customer acquisition
Customer acquisition cost (CAC)
Average deal size
Demographic analysis of individuals (potential customers) applying to become customers, and
the levels of approval, rejections, and pending numbers
Status of existing customers
Customer density (the proportion of revenue attributable to a specified percentage of accounts,
which ideally should match, for example the top 10% of accounts should broadly contribute
10% of revenue) [5]: page 8
Customer attrition (the loss of clients or customers)
Turnover (i.e., revenue) generated by segments of the customer population
Outstanding balances held by segments of customers and terms of payment
Collection of bad debts within customer relationships
Profitability of customers by demographic segments and segmentation of customers by
profitability
Many of these customer KPIs are developed and managed with customer relationship management
software.

Faster availability of data is a competitive issue for most organizations. For example, businesses
that have higher operational/credit risk (involving for example credit cards or wealth
management) may want weekly or even daily availability of KPI analysis, facilitated by appropriate
IT systems and tools.

Manufacturing

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Overall equipment effectiveness (OEE) is a set of broadly accepted nonfinancial metrics that reflect
manufacturing success.

OEE = availability x performance x quality

Availability = run time / total time; by definition this is the percentage of the actual amount of
production time the machine is running to the production time the machine is available.
Down time = time the building/ location/ service/ machine is out of operation due to any reason
(including planned down time such as maintenance or 'out of season').
Performance = total count / target counter, by definition this is the percentage of total parts
produced on the machine to the production rate of machine.
Quality = good count / total count, by definition, this is the percentage of good parts out of the
total parts produced on the machine.
Cycle time ratio (CTR) = standard cycle time / real cycle time
Capacity utilization
Rejection rate

Professional services
Most professional services firms (for example, management consultancies, systems integration
firms, or digital marketing agencies) use three key performance indicators to track the health of
their businesses. They typically use professional services automation (PSA) software to keep track
of and manage these metrics.

Utilization rate = the percentage of time employees spend generating revenue

Project profitability = the difference between the revenue generated by a project and the cost
of delivering the work
Project success rate = the percentage of projects delivered on time and under budget

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

Project execution
Earned value
Cost variance or Cost Performance Index
Schedule variance or Schedule Performance Index
Estimate to complete
Manpower spent / month
Money spent / month
Planned spend / month
Planned manpower / month
Average time to delivery
Tasks / staff
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Project overhead / ROI

Planned delivery date vs actual delivery date

Supply chain management

Businesses can utilize supply chain KPIs to establish and monitor progress toward a variety of
goals, including lean manufacturing objectives, minority business enterprise and diversity
spending, environmental "green" initiatives, cost avoidance programs and low-cost country
sourcing targets. Suppliers can implement KPIs to gain a competitive advantage. Suppliers have
instant access to a user-friendly portal for submitting standardized cost savings templates.
Suppliers and their customers exchange vital supply chain performance data while gaining
visibility to the exact status of cost improvement projects and cost savings documentation.

Any business, regardless of size, can better manage supplier performance and overall supply chain
performance,[10] with the help of KPIs' robust capabilities, which include:

Automated entry and approval functions

On-demand, real-time scorecard measures
Rework on procured inventory
Single data repository to eliminate inefficiencies and maintain consistency
Advanced workflow approval process to ensure consistent procedures
Flexible data-input modes and real-time graphical performance displays
Customized cost savings documentation
Simplified setup procedures to eliminate dependence upon IT resources
Main KPIs for supply chain management will detail the following processes:

Sales forecasts
Inventory
Procurement and suppliers
Warehousing
Transportation
Reverse logistics
In a warehouse, the manager will use KPIs that target best use of the facility, like the receiving and
put away KPIs to measure the receiving efficiency and the putaway cost per line. Storage KPIs can
also be used to determine the efficiency of the storage space and the carrying cost of the
inventory.[11]

Government
The provincial government of Ontario, Canada has been using KPIs since 1998 to measure the
performance of higher education institutions in the province. All post-secondary schools collect
and report performance data in five areas – graduate satisfaction, student satisfaction, employer
satisfaction, employment rate, and graduation rate.[12] In England, Public Health England uses
KPIs to provide a consistent measure of the performance of NHS population screening

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activities,[13]
and publication of up to four main KPIs for the most important contracts outsourced
by each UK government department is seen as a measure helping to increase transparency in the
delivery of public services.[14]

Other performance indicators

Duration of a stockout situation

Customer order waiting time

Human Resource Management

Employee turnover
Ability to recruit to advertised roles
Employee performance indicators
Staff satisfaction/ results of staff surveys
Proportion of staff unplanned absence (due to short or long term sickness)
Cross-functional team analysis
Organization contribution to Sector performance improvement Ex: Research Institutes
contribution to Commercial Agriculture Improvement [15]

Problems
In practice, overseeing key performance indicators can prove expensive or difficult for
organizations. Some indicators such as staff morale may be impossible to quantify. As such,
dubious KPIs can be adopted that can be used as a rough guide rather than a precise
benchmark.[16]

Key performance indicators can also lead to perverse incentives and unintended consequences as a
result of employees working to the specific measurements at the expense of the actual quality or
value of their work.[17][18]

Sometimes, collecting statistics can become a substitute for a better understanding of the
problems, so the use of dubious KPIs can result in progress in aims and measured effectiveness
becoming different. For example, during the Vietnam War, US soldiers were shown to be effective
in kill ratios and high body counts, but this was misleading when used to measure aims as it did
not show the lack of progress towards the US goal of increasing South Vietnamese government
control of its territory.[16] Another example would be to measure the productivity of a software
development team in terms of lines of source code written. This approach can easily add large
amounts of dubious code, thereby inflating the line count but adding little value in terms of
systemic improvement. A similar problem arises when a footballer kicks a ball uselessly to build up
their statistics.

See also
Business intelligence
Business performance management

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Community indicators
Critical success factor
Dashboarding
Data presentation architecture
Figure of merit
Gap analysis
Goodhart's law
ITIL
Key risk indicator
Match performance indicator
Network performance
Objectives and key results (OKRs)
Overall equipment effectiveness
Strategy Markup Language
Supplier relationship management (SRM)

References
1. Carol Fitz-Gibbon (1990), "Performance indicators" (https://books.google.com/books?id=uxK0
MUHeiI4C), BERA Dialogues (2), ISBN 978-1-85359-092-4
2. Weilkiens, Tim; Weiss, Christian; Grass, Andrea; Duggen, Kim Nena (2016). "Frameworks".
OCEB 2 Certification Guide. Elsevier. pp. 149–169. doi:10.1016/b978-0-12-805352-2.00007-8
(https://doi.org/10.1016%2Fb978-0-12-805352-2.00007-8). ISBN 9780128053522. "KPI is a
business metric that measures the degree of fulfillment of a goal or a Critical Success Factor
(CSF). The CSF is an organization-internal or organization-external property that is necessary
to achieve a specific goal. A CSF can involve multiple KPIs."
3. "What is a Key Performance Indicator (KPI)" (https://kpi.org/KPI-Basics/). KPI.org. Retrieved
1 January 2022.
4. Key Performance Indicators – What Are Key Performance Indicators or KPI (http://managemen
t.about.com/cs/generalmanagement/a/keyperfindic.htm)
5. Key Performance Indicators: Establishing the Metrics that Guide Success (https://web.archive.
org/web/20171201182609/https://www.ca.com/content/dam/ca/us/files/white-paper/key-perform
ance-indicators.pdf) (PDF), archived from the original (https://www.ca.com/content/dam/ca/us/fi
les/white-paper/key-performance-indicators.pdf) (PDF) on 2017-12-01, retrieved 2016-04-23
6. "KPIs and the Logic of Decision Making" (https://www.linkedin.com/pulse/kpis-logic-decision-m
aking-peder-enhorning). www.linkedin.com. Retrieved 2021-04-04.
7. Dolence, Michael G. (1994). "Using Key Performance Indicators to Drive Strategic Decision
Making" (https://www.academia.edu/10964223). New Directions for Institutional Research.
1994 (82): 63–80. doi:10.1002/ir.37019948207 (https://doi.org/10.1002%2Fir.37019948207) –
via academia.edu.
8. Eckerson, W., Ten Characteristics of a Good KPI (https://www.bpmpartners.com/2016/07/17/ch
aracteristics-of-a-good-kpi), BPM Partners, published 17 July 2016, accessed 24 November
2022
9. Palffy, Georgina (2015-04-14). How Business Works (1st ed.). DK Publishing. p. 146.
ISBN 978-1-46542-979-7.
10. El Sayed, H., Supply Chain Key Performance Indicators Analysis (https://www.ijaiem.org/volum
e2Issue1/IJAIEM-2013-01-28-059.pdf), International Journal of Application or Innovation in
Engineering & Management (IJAIEM), Volume 2, Issue 1, January 2013, accessed 6 January
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11. "Key Performance Indicators for Warehousing Performance | SIPMM Publications" (https://publ
ication.sipmm.edu.sg/key-performance-indicators-warehousing-performance/#Receiving_and_
Put-Away_KPIs). publication.sipmm.edu.sg. 6 October 2020. Retrieved 2022-07-27.
12. "Key Performance Indicators" (https://www.collegesontario.org/en/resources/2019-kpi-results).
Colleges Ontario. Retrieved 2019-09-25.
13. Public Health England, Population screening KPIs: purpose and data submission guidance (htt
ps://www.gov.uk/government/publications/nhs-population-screening-reporting-data-definitions/p
opulation-screening-kpis-purpose-and-data-submission-guidance), updated 17 August 2020,
accessed 24 November 2022
14. Cabinet Office, Key Performance Indicators (KPIs) for government's most important contracts
(https://www.gov.uk/government/publications/key-performance-indicators-kpis-for-governments
-most-important-contracts), last updated 25 November 2022, accessed 26 November 2022
15. Abeysiriwardana, Prabath Chaminda; Jayasinghe-Mudalige, Udith K. (2021). "Role of
Peripheral Analysis Methods in Adoption of Successful KPIs for a Research Institute Working
Towards Commercial Agriculture" (https://doi.org/10.1007%2Fs42943-021-00021-z).
International Journal of Global Business and Competitiveness. 16: 61–71. doi:10.1007/s42943-
021-00021-z (https://doi.org/10.1007%2Fs42943-021-00021-z). S2CID 257161299 (https://api.
semanticscholar.org/CorpusID:257161299).
16. Daddis, Gregory (June 1, 2011). No Sure Victory: Measuring U.S. Army Effectiveness and
Progress in the Vietnam War. Oxford University Press, USA. ISBN 978-0-19974-687-3.
17. Austin, Robert D. (Robert Daniel), 1962– (1996). Measuring and managing performance in
organizations. DeMarco, Tom., Lister, Timothy R. New York: Dorset House Publishing.
ISBN 0932633366. OCLC 34798037 (https://www.worldcat.org/oclc/34798037).
18. Martin Fowler (2003-08-29). "CannotMeasureProductivity" (http://martinfowler.com/bliki/Cannot
MeasureProductivity.html). Martinfowler.com. Retrieved 2013-05-25.

Further reading
David Parmenter, Key Performance Indicators – Developing, Implementing, and Using Winning
KPIs. (4th Edition). John Wiley & Sons 2020, ISBN 9781119620778.
Bernard Marr, Key Performance Indicators: The 75+ Measures Every Manager Needs to Know.
Financial Times/ Prentice Hall 2012, ISBN 978-0273750116.
Abeysiriwardana P.C., Jayasinghe-Mudalige U., Role of Peripheral Analysis Methods in
Adoption of Successful KPIs for a Research Institute Working Towards Commercial Agriculture.
https://doi.org/10.1007/s42943-021-00021-z in JGBC, ISSN 0976-1888 (https://www.worldcat.o
rg/search?fq=x0:jrnl&q=n2:0976-1888)

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