A Key Performance Indicator (or KPI for short) is a measurement used to analyze specific areas of a business. KPIs can be used to define performance of the entire organization, business units, projects or individual employees. Understanding organizational performance levels provides a perspective that enables stakeholders to ask questions and make decisions based on data. This can assist companies in deciding where changes are required and where energy needs to be focused. Enterprises utilize KPIs to evaluate how close they are to reaching their goals.
Business Intelligence and Data Analytics is intimately related to the practice of tracking KPIs. Most BI tools include dashboard functionality that enables the user to bring together a collection of KPIs that the company is tracking against. Once these KPIs are in a common place, business units can generate reports that provide them with in-depth insight into underlying business metrics. Which KPIs an organization plans to use will depend upon the industry they reside in and which parts of the business they are looking to learn more about. Every department will utilize a different set KPIs to measure their own targets and goals.
There are literally thousands of different types of KPIs available. The challenge of the day is to deploy the most relevant group of indicators to shine light on key performance areas and highlight places where attention may be required. Most experts advise starting with obvious metrics, like profits, and then drilling down further from there into lower-level analyses aimed at specific departments. Oftentimes, businesses will begin tracking against too many different KPIs. For this reason it’s best to begin with high-level KPIs and sift downward from there.
KPIs provide the most strategic benefit when they are tailored to track the metrics that have the largest impact on an organization. The more broad the indicators, the less likely they are to generate data that can be used to solve problems. Before deciding which KPIs should be tracked against, organizations formulate objectives that they are interested in achieving. In this way, KPIs act as a form of communication that signal to stakeholders the strengths and weaknesses of an organization so that the appropriate action can be taken. Departments can then implement best practices to ensure goals are met.
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