Five Popular Mistakes for Key Performance Indicators [KPIs]
Given the time pressure that everyone feels in the corporate world, it is very tempting to assign the task of KPI selection to one individual and ask them to suggest a list of metrics for the company or business area to use as KPIs. However, KPI selection is not a task and all metrics are not KPIs. KPI selection is an activity that requires careful planning or you will not obtain desirable results.
In this article, I will focus on five popular mistakes when it comes to the topic of KPIs. I could list dozens of potential mistakes but those who read my work know that I prefer to get my point across quickly… and I like my lists to be prime. I’m certain that five examples will be more than enough to convince you to plan ahead.
Mistake #1: Not involving the right people in selecting the KPIs
No one person can be assigned the activity of selecting the key performance indicators for a business or business area. It will require a team to get the selection right. Who the team members need to be depends on the business area that is seeking to establish their KPIs.
For example, if Human Resources wishes to establish a list of KPIs, it needs to recognize that it is a service and the other areas within the company are its internal customers. These areas of the company need to be interviewed in order to determine the key challenges they face and how HR contributes to solving these challenges. Every challenge does not need to be addressed. Using the 80-20 rule is highly recommended.
As another example, suppose you are a Supply Chain department seeking to establish your KPIs. The same approach is recommended because you are also a service function and the other business areas are your customers. What is it that your internal customers need most and how can you align your KPIs to measure your success in serving their needs?
Mistake #2: Failing to align your KPIs to business objectives and strategy
KPIs should be aligned to what you are trying to accomplish, i.e., to your business objectives. Those objectives were (hopefully) aligned to your strategy. For example, if the primary feedback that the business areas provided back to the supply chain department mentioned above was that they have great concerns over cost and delivery, the supply chain KPIs should align to those aspects of serving your internal clients. If no-one’s mentioning supplier quality, quality can be monitored by the supply chain professionals that manage each supplier. There’s no need to make that a reportable KPI.
Mistake #3: Failing to consider the unintended consequences
Hopefully the corporate world has learned a valuable lesson from the Wells Fargo incident in recent years. If you missed this incident in the news, the selection of certain metrics and targets resulted in hundreds of employees opening unauthorized customer accounts. Sadly, this is the most frequent mistake I observe and companies find themselves having to adjust their KPIs when the behaviour they observe is not the one they intended to encourage.
Mistake #4: Failing to assess impact versus effort
As you work your way through KPI selection, you will reach a point where you have your desired list of KPIs. However, an additional step is needed before you move ahead to implement the regular reporting of this information. The step that many teams miss is the step of assessing practicality. Are there KPIs on your list where the amount of effort to produce them far exceeds the value they provide?
Mistake #5: Failing to act on what your KPIs are telling you
One final mistake I will mention is one where teams fail to act. The whole point of KPIs is to keep a close eye on key measurements in your business so you can act on them when they begin to trend in an unfavourable way. Unfortunately, if no-one is accountable to act on these KPIs, they remain a pretty chart or table, lose their value instantly and serve no purpose other than to use up valuable resources.
Tracey Smith is an internationally recognized analytics consultant, speaker and author. Tracey has worked with and advised organizations, both well-known and little-known, on how to use data analytics to impact the bottom line. Her career spans the areas of engineering, supply chain and human resources. If you would like to learn more, please visit www.numericalinsights.com or contact Tracey Smith through LinkedIn. You can check out her books on her Amazon Author Page.