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KPIs - The Metrics That Drive Performance Management
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photo, Kent Bauer
Although selection of the appropriate visuals and graphs contribute to the effectiveness of a business performance management (BPM) dashboard, the true "soul" of the dashboard is the key performance indicators (KPIs). KPIs measure the business health of the enterprise and ensure that all individuals at all levels are "marching in step" to the same goals and strategies. They also provide the focal point for enterprise-wide standardization, collaboration and coordination. In this column and in subsequent months, we will discuss the important role of KPIs in the performance management process, provide guidelines for choosing the most appropriate and meaningful KPIs, and leverage Six Sigma techniques to facilitate KPI development and prioritization.
The KPI Definition
Selecting and defining KPIs is not as easy as it sounds. In the current marketplace, any time you purchase business intelligence (BI), enterprise resource planning (ERP), supply chain management (SCM), customer relationship management (CRM) or business performance management (BPM) systems, you have the dilemma of choosing 15 to 20 KPIs from the several hundred (or thousand) metrics that are included in the package. How do you differentiate KPIs from "just" plain ordinary metrics? How do you ensure the selected metrics are critical business drivers? How do you validate that the selected metrics lead to enterprise rather than localized optimization? How do you balance the short- and long-term goals? Do you have the available data to support the metrics?
In our quest to answer these questions, let's start our KPI journey with a basic definition. KPIs are quantifiable metrics which reflect the performance of an organization in achieving its goals and objectives. KPIs reflect strategic value drivers rather than just measuring non-critical business activities and processes. KPIs align all levels of an organization (business units, departments and individuals) with clearly defined and cascaded targets and benchmarks...