The Importance of KPI Management: The Complete Guide For Your Business

KPI management is a set of practices that include a definition, monitoring, and control of strategic business measures that allow you to identify the strengths and weaknesses of various internal processes. They are a fundamental part of a company's management strategy. But what does this mean in practice?

The beginning of a new year brings the need to evaluate the previous year. This is when the goals that the company wants to achieve over the next year are outlined – after all if no goals are set, how can you evaluate your company's performance? And the performance of each of your employees?

Regardless of whether the results were good, how do you know if they could have been even better? Or if they were the result of circumstances outside the company’s control? Or even if there is a specific area that needs to be improved? This is why the creation and management of KPIs is crucial!

To be able to set goals to later measure results is vital, especially in companies with a strong technological component!

What are KPIs?

KPI stands for Key Performance Indicator. KPIs are percentages or numerical and quantitative values that measure the success of various internal processes in the company.

From the KPI management of a company, it is possible to check if the actions taken are aligned with the expected goals and contributing to the company's growth, or if the results obtained are below expectations and require extra support and revision.

Good KPI management even allows monitoring the success of different steps within each process. This makes it much easier to identify potential failures and find the causes of problems and consequently implement improvements.

Key KPI Categories and Examples

Different companies need to manage different KPIs depending on their goals. There are different categories of Performance Indicators such as:

• Productivity Indicators. They evaluate the output and efficiency of processes in companies, measuring the number of resources a company uses to create a particular product/service.
• Quality indicators. They make it easy to analyze any type of failure or unforeseen event that occurs during production.
• Capacity indicators. These measure the ratio between outputs per unit of time, that is, the responsiveness of a given process. These indicators show the company's competitiveness.
• Strategic indicators. They compare the company's current state with previously established goals.

Some of the most common KPIs include Conversion Rate, Sales Rate, Churn Rate, and Customer Acquisition Cost. For instance, if a change implemented in a company is expected to increase the number of sales but it turns out that the KPI corresponding to the Sales Rate has dropped, it is necessary to re-evaluate the implemented change.

Each goal can be broken down and measured based on several KPIs. For example, if your company is interested in improving customer service, there are several KPIs to focus on, such as:

• Average Service Time
• Average Wait Time
• Initial Response Time
• Abandonment Rate
• Customer Satisfaction Score
• Net Promoter Score

For example, if you see that the average customer service time is too high, the respective department should create new actions to optimize this area, reducing the average service time and improving the customer experience.

What is KPI Management?

KPI management consists of determining the indicators that meet the company's internal goals, applying different actions capable of positively influencing these indicators, and monitoring the results obtained.

KPIs are measured in absolute values or percentages. Their results allow the monitoring of the success of the processes implemented in the company and the detection of any flaws that may jeopardize the company's growth.

How to make good KPI management?

To make good KPI management, you only need to follow a few important steps:

• 1. Define the KPIs to monitor. The KPIs best suited to different companies depend on their goals. It is important that each department has its own strategic indicators. Representatives from all departments should create communication points to align their expectations, especially if they have common KPIs.
• 2. Choose a platform to record KPIs. KPI management should be done using proprietary software that makes the team's work easier. Tools such as CRM or even Google Analytics are widely used to manage KPIs.
• 3. Monitor the results. Throughout this step, your team should try to quickly identify any kind of problems that may arise based on the KPI values. The sooner these problems are detected, the sooner solutions can be used to solve the situation.
• 4. Perform comparative analysis. Effective KPI management also includes comparing the current KPI values with the company's history. This allows you to establish if the company is progressing or regressing with respect to achieving its goals.

What is the Purpose of KPI Management?

The main purpose of KPI management is to identify whether the measures implemented are benefiting your company and helping it to grow, or if they are not delivering the results you might expect.

KPI management generates hard data about a company's performance at various levels. They are not based on assumptions and are predictable, thus contributing to the healthy growth of any company.

By having access to the KPI values, employees in the company's various departments can establish more effective ways to achieve the goals related to their KPIs.

Through KPI management, the company can optimize the achievement of its strategies. Using this type of diagnosis, companies can evolve, grow, and improve their market positioning.

The Importance of KPI Management - Final Remarks

KPI management allows companies to determine which paths to choose to achieve the established goals faster. These indicators bring concrete data and offer a diagnosis of the company in the most varied departments.

Optimizing the management of KPIs means an increase in productivity that will certainly contribute to the growth of your business, so it is important that you invest in their creation and analysis throughout the year. We assure you that it is not a waste of time, but an investment that will bring you a lot of returns!

If one or several of your KPIs are related to employee recruitment and retention, count on KWAN as your outsourcing partner to help you build and maintain a solid tech team whose productivity increases over time! 

Reach out to us and let's assess your project needs together.

Article originally published at https://kwan.pt/blog/the-importance-of-kpi-management-the-complete-guide-for-your-business on March 27, 2023.