How to Develop Key Performance Indicators – 6 Steps for Great KPIs
How to develop key performance indicators is very important process to allow you to effectively manage greater amounts of activity. How you use KPIs will help you drive the right behaviours and activities which in turns drives better results. Select the right key performance indicators and use them well and you increase the chances of reaching your goals. Select the wrong KPIs or only partially effective KPIs, and you create distractions or cause your team to focus on the wrong areas.
Many companies are good at writing strategy – only a few are good at implementing their strategies. Developing key performance indicators is a vital step in implementation.
Nearly every manager will use or create KPIs, especially when thinking about how to measure team performance.
Peter Drucker’s quote “You can’t manage what you can’t measure” holds very true is you want others to focus on what is important to you and the business – and deliver the results you need.
How to Develop Key Performance Indicators
- Always start with your goals
- Define the questions to answer
- Identify the data to support Your KPIs
- Create ownership of the KPIs
- Building Visibility, Accountability & Discussion of the KPIs
- Interpret the results and take action
Watch on YouTube
Listen on Podcast
KPIs are used to create and measure progress towards your most important goals. What you spend your time looking at, talking about and checking as a manager is what is going to be important to your team and what they will focus their time and effort on.
When thinking about how to evaluate team performance, project performance, business performance, good KPIs are an invaluable tool.
Always start with your goals – step 1 in developing Key performance indicators
Using KPIs properly drives team behaviour and effort. Extra focus and attention on the most important goals increases the likelihood of reaching those goals which is good for everyone.
This could be implementing the company strategy. It could be realising departmental medium terms goals. It could be day to day goals.
Always start with the goals that you are trying to reach, the result you intend to get to when developing key performance indicators.
Define the goal or objective clearly. Make it as specific as possible. A good test – will a stranger understand exactly when you have reached your goal.
Always write your goal or objective down. Writing forces you to think about and articulate your goal more clearly. I would share your goal with your manager and other important stakeholders.
Writing it down and circulating your goals or objectives will reduce future issues such as goal creep or changing expectations. This step will also ensure your goals tie into the bigger picture goals of the company and other departments.
Always start with clear, SMART Goals or objectives.
Define the questions to answer – The second step in how to develop KPIs
Once you have a clear goal defined, written down and circulated, then you can start working out how you are going to reach that goal.
Plan out the different routes – or series of steps – available to reach your goals if you haven’t already. When you have chosen your preferred route and you know the steps and the outcomes you are seeking from each step you can start to think about the behaviour you want to encourage using KPIs
A question to answer might be “What is the top 2 or 3 activities or projects we need to consistently undertake so we meet our goals and deliver the financial results needed?”
A straightforward example – the goal is to drive an extra £5m in sales at a recruitment company. The steps in general terms could be
- to do more and better quality prospecting activities,
- improve the number of calls and meetings held with clients following the prospecting activities, and
- increase the number of vacancies given to fill, then
- improve the success rate of filling those vacancies
Measuring employee performance through these four stages and improving it will help earn you the extra £5m targeted.
You might decide that prospecting is the most important activity as the rest won’t happen without it. Your most important KPI to drive the volume and quality of prospecting might be the number prospecting phone calls.
Decide exactly what questions you need to answer to drive progress to your goals.
The third step in how to develop key performance indicators is to Identify the data to support Your KPIs
Don’t start this step by looking at what information you have. This is the wrong approach and often leads to settling for okay rather than great KPIs. Work out exactly what data you need to track progress on the KPIs you have selected.
Make sure the KPIs drive the right behaviour and thus the right results.
Get your finance team to help work out how to capture and collate the data needed. Think about what additional inputs might be needed such as easily recording outbound call volume and length on the CRM system.
If capturing this data is too hard or too expensive ask the finance team, your manager, or your own team if they can come up with alternative measures which will drive the same behaviour and results.
Using KPIs to drive actions will need data that is quick and relatively easy to collect. If you can automate the collection of the data, perfect.
Create ownership of the KPIs – Step 4 in developing KPIs
One of the best ways of creating ownership of KPIs is involving specific team members in designing the KPIs and setting them up. Then handing over the collation, review, and reporting of those KPIs is an easy step. Getting others to manage the KPIs – of course – reduces your workload.
You will need to regularly review the KPIs which we will talk about in a second.
Always give ownership of a KPI to one specific person. Their responsibilities are to ensure that the KPI is produced accurately and reported on time, not necessarily do all the work themselves.
Explain the importance and the context of the KPI and how you are going to use the KPI to the person you are assigning it to. This will increase the likelihood they will own it.
Ask one specific person to own each KPI.
The fifth step in how to develop key performance indicators is
Building Visibility, Accountability & Discussion of the KPIs
Having a nice set of KPIs is pointless unless you use them to drive behaviour and action. A key step to achieve both is building visibility of the KPIs.
Here are 6 ideas of how to do this:
- Send round a weekly KPI email to team members and stakeholders
- Talk about the KPIs in team meetings and one-on-one meetings
- Meet to go through KPIs with stakeholders and your manager
- Put the KPIs on a whiteboard in full view of the team (or use a TV screen)
- Hold huddle meetings each day or week and get team members to update the KPI they own on a scoreboard
- Hold planning meetings to work how to improve the results the KPIs are tracking
In short, do everything you can to keep the KPIs visible and in the front of people’s minds.
Visibility helps create accountability as everyone likes to be seen to be doing well and no-one wants to be last. Utilising peer pressure is a powerful tool, combined with team performance tracking. Any group member will feel the need to contribute and do their share.
Take every opportunity to discuss the KPIs you are tracking. Keep asking – are these still the right ones to drive us towards our goals. As more complex project progress or improvement are implemented, changing the focus of KPIs is common. Focus on what is most important.
Build visibility and accountability by communicating the progress using your KPIs.
Interpret results and take action – The sixth step in how to develop key performance indicators
You must take action or get your team members to take action. Taking action is where the value is created and how you progress more quickly towards your goals.
Using key performance indicators is a great way to find the trouble spots quickly and then dig into the detail.
Increase the activities which speed up progress towards your goals and reduce what doesn’t appear to be working.
Keep asking yourself
- Why is progress where it is?
- What can I to do increase the progress being made?
- What can I do to anticipate possible problems and sidestep these problems to keep progress on track?
Keep looking and planning ahead. If you are behind, plan out what action you can and will take to get back on track. If you are head, what actions can be taken to get further ahead?
Use KPIs to make it easy to spot good or bad performance and take action accordingly.
In summary
How to develop Key performance indicators is a very useful skill to develop for any manager. Managing what you can’t measure is a lot harder. Measurement of progress is a core tool for every manager.
When you have your KPIs, work hard to make sure the team, stakeholders and your manager are aware of progress, and you and your team are focused on actions that are practical and sensible to take to improve progress.
To recap, the 6 steps for how to develop key performance indicators are:
- Always start with your goals
- Define the questions you need answering
- Identify the data to support Your KPIs
- Create ownership of the KPIs
- Building Visibility, Accountability & Discussion of the KPIs
- Interpret the results and take action
Developing key performance indicators (KPIs) and using data is a key tool to track team and business performance. Creating visibility is also a vital step in encouraging ownership throughout teams, and for creating peer pressure and healthy competition.
For these reasons, I feel managers need to build their understanding of how to use KPIs and how to identify which metrics to track to monitor performance in their team. Understanding what the KPIs and data is telling you and taking action remain the most important steps.
