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What are KPIs?

KPI stands for 'key performance indicator,' which is a specific measure of a company's performance in some aspect of its business.
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  • Written By: Brendan McGuigan
  • Edited By: Niki Foster
  • Last Modified Date: 19 July 2014
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A key performance indicator (KPI) is a specific measure of an organization's performance in some area of its business. It is a very general concept, with different implementations depending on the type of business and goals of the organization. Examples may include such things as the percentage of deliveries made on time, total inventory at any given time, distribution costs as a percentage of total sales, accuracy of invoices sent to clients, or lead time for a product.

The purpose of KPIs is to give a business quantifiable measurements of things it has determined are important to its long-term success. Identifying the most important indicators is the first step towards realizing increased profitability and efficiency for most businesses. For these measurements to be useful, they must be consistently quantifiable, have an established correlation to the area of the business in need of improvement, and not give false readings.

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For example, a massage company may notice that the bulk of its profits come from repeat customers to the same masseuse. They wish to move more of their business towards repeat customers and the steadier, long-term cash flow they represent. One of the most important KPIs for this company is therefore the number of repeat customers a masseuse gets. By tracking which customers request a masseuse by name and have been in before, they are able to accurately calculate this figure. They may then set a specific goal, such as 50% of customers being repeat business, and track how their employees meet this number. Employees that meet or exceed the target are rewarded, while employees that fall short are given further training in order to achieve the target.

KPIs may be differentiated in a number of ways. Directional ones, for example, give a simple better-or-worse rating for a specific area of a business and track whether or not business is improving. Quantifiable KPIs, on the other hand, are represented as a number and allow for more accurate analysis of the data. Even those that are not initially in numeric form may be translated into numbers. A user rating system of Poor, Fair, Good, and Excellent, for example, may be translated to a number scale of one to four.

It is also important to recognize whether these factors are within the ability of the business to affect or not. While it may be important to track such indicators as customer fall-off due to inflation, the active factor of inflation is not actionable for the company, and is therefore less important than a measurement that may be directly acted upon by the business.

Overall, KPIs offer an excellent opportunity for businesses to target specific areas of desired growth and achieve maximum results. Many banks and other lending institutions make data on these indicators available to borrowers to help them achieve greater profits, and many individuals find that it is worth looking into whether a lending institution offers this service.

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Discuss this Article

anon926048
Post 25

Please explain the KPIs for the switchgear industry related to the following departments:

Engineering, Marketing, Purchase HR, Accounts, Production, Order Handling

MarioW
Post 24

I'm looking for KPI's on a production plan as well as a master production schedule.

anon220691
Post 22

I am a biomedical engineer and working as a manager in biomedical engineering department of a Hospital. I want to know the KPI of biomedical Engineering department and i want to calculate the KPI for every individuals (Engineers and technician) working in my department.

anon183247
Post 21

Please explain the KPI of the telecom sector with n/w performance. --Navi

anon159949
Post 20

I'm in the retail business, and I'm managing a shopping mall. I want to know about kpi for this business. Thanks.

SEMsem
Post 18

please tell me KPI's for following departments:

quality assurance, planning, R&D, industrial relations, costs, accounts, security, engineering, laboratory, purchase, warehousing and supply chain.

i also hope that you can help me about how i can obtain it and how i reform it,

anon86426
Post 17

i work as an accountant in a non-profit organisation. please help me get some kpis examples.

anon75581
Post 16

I am a biomedical engineer and working as a manager in biomedical engineering department of a Hospital. I want to know the KPI of biomedical Engineering department and i want to calculate the KPI for every individuals (Engineers and technician) working in my department.

anon71050
Post 15

Can anyone please help me with measurable KPI's in an asset and portfolio management company with regards to credit risk, liquidity risk,operational risk and market risk?

anon69736
Post 14

I am working Regulatory Field and not sure how I can measure KPI. I do provide regulatory assistance to internal and external customers; from simple to complex inquiries.

anon60392
Post 13

what are the kpis for a retail optician's practice?

anon59381
Post 12

I work as a engineer in university under AV department. What kind of KPI can support my department and university?

anon59069
Post 11

I work in technical support and need your ideas what is my kpi. get blurred now. help me faster.

anon58357
Post 10

Can anyone help me to explained how to achieve call center KPI?

anon57187
Post 9

I am an engineer and i am working for a power utility distribution company. I want to know the KPI of a power distribution engineer.

anon56758
Post 8

i would like to get KPI's of a distributor.

anon53412
Post 7

what are the KPI for annual performance appraisals in an insurance company?

dodo2009
Post 6

i would like to get some examples of how KPI may be used to measure the performance of a supermarket as in promotions, etc.

anon42056
Post 4

please tell me KPI's for following departments:

quality assurance, planning, R&D, industrial relations, costs, accounts, security, engineering, laboratory, purchase, warehousing.

anon35669
Post 3

what are the KPIs for marketing, purchase,desings, ppc, prodcution,Quality control and Quality assurance of Engineering Industry

anon12310
Post 1

I am eng. i am working as quality manager in a deed telecom company our company consists of human resources, project management, purchasing, and warehouse, i wanna to calculate the kpi for every department but i do not know can u help me in that plz.

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