How to Select Key Performance Indicators

Companies have access to a large number of figures that can be measured and monitored, including sales, customer numbers, complaints, process completion times, productivity, training hours, and many others.

However, the fact that a figure exists and can be measured does not necessarily mean that it should be considered a Key Performance Indicator.

Key Performance Indicators are used to monitor the required level of achievement in areas that are important and relevant to the organization’s activities. They help management develop a clearer view of performance, focus on what is connected to organizational objectives, and track progress toward the required results.

The problem begins when every available piece of data is turned into an indicator. The number of metrics, reports, and dashboards increases, while the overall picture of performance does not become any clearer.

What Makes an Indicator a Key Performance Indicator?

Ease of measurement or data availability alone is not enough to classify a figure as a Key Performance Indicator.

When selecting KPIs, three main considerations should be taken into account:

Relevance: The indicator should be connected to the strategy and to the specific area of performance that the organization wants to measure.

Clarity: The indicator should have a clear definition so that everyone understands what it measures and how its results should be interpreted.

Balance: The selected indicators should reflect more than one dimension of performance, such as quality and quantity, or efficiency and effectiveness.

A company may have an accurate figure that is updated regularly, yet that figure may not provide meaningful information about any of its objectives. In this case, it remains a measurable figure, but it does not necessarily qualify as a Key Performance Indicator.

The Relationship Between Objectives, Indicators, and Targets

Key Performance Indicators are directly linked to the company’s objectives.

The relationship begins with the vision and strategic plan, followed by detailed objectives and the implementation plan. The indicators are then used to measure the level of progress toward achieving those objectives.

When a company has a specific objective, a performance indicator is used to monitor progress toward it, while the target value defines the level that should be reached within a specified period.

For example, if the objective is to increase market share, market share can be used as a performance indicator, with a target of 20% by the end of the financial year. Responsibility for achieving the objective should also be clearly assigned.

This creates a clear relationship between:

What the company wants to achieve, what it will measure, and the level it wants to reach.

When indicators are selected separately from objectives, management may end up monitoring a large number of figures without clearly understanding what those figures reveal about the company’s progress.

Are You Measuring Activity or Results?

When designing Key Performance Indicators, it is important to distinguish between:

Inputs, processes, outputs, and outcomes.

Training provides a useful example for understanding the difference.

Inputs: The training budget and the number of employees responsible for supporting training activities.

Processes: The number of training hours per employee and the number of training courses delivered.

Outputs: The percentage of employees who completed the training and the participants’ satisfaction with the training experience.

Outcomes: The percentage of employees who reached the required competency levels and the improvement achieved in their skills.

All these figures are important, but they do not measure the same thing.

The number of training courses shows the volume of activity delivered, but it is not sufficient on its own to determine whether the training achieved the intended result.

The issue is not the measurement of activity, as management may need these figures to monitor operations and resources. However, treating every operational measure as a Key Performance Indicator can result in an overcrowded dashboard that does not provide a clear view of results.

The more important question is:

What does management need to know before deciding what it wants to measure?

More Indicators Do Not Mean Better Measurement

Having a large number of indicators does not mean that the performance measurement system is more effective.

When developing a measurement system, it is important to avoid indicators that are unrelated to the organization’s work, limit the excessive use of indicators, and avoid copying indicators used by other companies without first confirming their relevance to the organization’s activities and objectives.

The quality of an indicator can be evaluated using the CREAM criteria:

C | Clear: The indicator should be specific, easy to understand, and not open to multiple interpretations.

R | Relevant: The indicator should be connected to the objective and to the area of performance being monitored.

E | Economic: The cost of collecting the data and measuring the indicator should be proportionate to the value of the information it provides.

A | Adequate: The indicator should provide sufficient information about the performance being monitored.

M | Monitorable: It should be possible to monitor the indicator and independently verify its data.

Indicators should also be comparable across different periods. This enables management to monitor performance trends and determine whether performance is improving or declining.

The objective is not to measure everything that can be measured. It is to select a focused set of indicators that gives management the information it needs to understand performance and make informed decisions.

Selecting an Indicator’s Name Is Not Enough

Selecting the indicator is an essential step, but it is not sufficient on its own.

Each indicator requires clear documentation that specifies:

What does the indicator measure?

How is it calculated?

What is its data source?

What is its target value?

How frequently should it be measured and reviewed?

For an indicator such as the hospital bed occupancy rate, simply stating the name of the indicator is not enough. Its definition, the number of occupied beds, the total number of available beds, the calculation formula, the formula type, the target, and the thresholds used to classify performance levels should all be clearly defined.

The quality of an indicator also depends on the completeness of its KPI card. This includes the definition, calculation formula, data source, unit of measurement, baseline, targets, required performance direction, measurement frequency, and the person responsible for the indicator. The actual result and its source should also be documented while ensuring consistency of measurement across reporting periods.

The more clearly an indicator is documented, the easier it becomes to measure it consistently and ensure that its results are understood in the same way across the organization.

From Measurement to Decision Making

The purpose of Key Performance Indicators is not to increase the number of figures included in reports or to create dashboards filled with charts.

Their real value appears when they are used to understand current performance, track progress, identify areas that require improvement, and support decision making through analysis.

Measures produce figures. Performance indicators help evaluate performance. Analysis then turns those results into useful information that management can use when making decisions.

Before approving any indicator, it is therefore important to answer five questions:

Does it relate to a clear objective?

Does it reflect an important aspect of performance?

Can it be measured and monitored consistently?

Will its result help management make a decision?

Can its result be compared across different periods?

If the answers are not clear, the figure being monitored may simply be a measure rather than a Key Performance Indicator.

How Can Consolve Support Your Company?

Consolve helps companies develop integrated performance measurement systems and link Key Performance Indicators to strategic and operational objectives. This enables management to monitor results and measure progress clearly.

This includes:

• Designing Key Performance Indicators at the company and departmental levels.

• Linking indicators to strategic and operational objectives.

• Defining target values and measurement periods for each indicator.

• Preparing KPI cards and documenting definitions, calculation formulas, and data sources.

• Assigning responsibility for measurement and performance monitoring.

• Reviewing existing indicators and addressing duplication or weak alignment with objectives.

• Organizing indicators in a way that supports performance monitoring, results analysis, and decision making.

Whether your company is developing its Key Performance Indicators for the first time or already has an existing system that requires review and improvement, Consolve can help you build a measurement system that aligns with your objectives and the nature of your business.

Summary

Not every figure is a Key Performance Indicator.

A figure may be important for operational monitoring or useful for analysis, but it does not become a Key Performance Indicator unless it is linked to what the company wants to achieve and provides a clear view of performance.

Before adding a new indicator to a dashboard, do not only ask:

Can we measure it?

Also ask:

What will this indicator tell us?

Which objective does it measure?

What decision will its result help us make?

If your company monitors a large number of indicators without gaining a clear view of its progress, the problem may not be a lack of data. It may lie in the way the performance indicators themselves were selected.

Start reviewing your Key Performance Indicator system with Consolve and identify the indicators management actually needs to measure performance and make informed decisions.

Click here to book an initial consultation with the Consolve team.