Technology

What is KPI? Overview of KPI Information and Steps to Build KPIs for Businesses

KPI has been around in Vietnam for a while but some of you may not be familiar with it. KPI is a familiar metric in business and is used to measure and manage performance. However, to have a better understanding of KPI, let's explore it with FPT Shop right below.

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8 January, 2024

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KPI, what is it? This is certainly a familiar metric in business or marketing. However, for newcomers who are not familiar with this metric in their work. This article FPT Shop will explain it to you in more detail.

What is KPI?

KPI stands for Key Performance Indicator. This is the metric to measure the efficiency and performance of an individual, team, department, and even a company.

KPIs are represented by specific quantitative values. These Key Performance Indicators help businesses easily evaluate the performance of their employees and make assessments of their capabilities, calculate bonuses, and more.

The importance of KPI for businesses and employees

It can be seen that this metric plays an important role in a business. This metric helps you truly understand KPI, and here is the significance of this metric for businesses and employees.

Role in business

The KPI metric plays an important role in a business. This is not only a metric to measure the efficiency in the business strategy or marketing, but it is also a measure to evaluate the performance of employees. Here are the main roles of KPI in a business:

Establish specific goals for employees based on this metric.
Accurately assess the capabilities and work performance of employees.
Evaluate the business strategy and clearly redefine the strategy if necessary.
Create a learning space for employees.

Role for employees

This metric is not only important for businesses but also for employees who need to understand it to avoid being perplexed when given tasks with specific KPIs. It will help employees easily control and achieve their goals according to the set indicators.

The consequences of not understanding the function of KPI and how to accomplish it can result in KPI chases, missed deadlines, and failure to complete tasks. This is also the reason why many companies/departments apply KPIs to help employees excel at their work.

In general, KPI plays the following roles for employees:

Employees will easily understand the workload they need to complete.
Measure the performance in completing tasks against the set targets.
Create clear working plans for each KPI and goal.
Create motivation for employees to achieve their goals.
Recognize when progress or effectiveness deviates from KPI and the intended target to make adjustments and improvements.

Common types of KPIs you should know

To classify these metrics, we will base them on the roles in a company. The following are common types of KPIs that you should know.

Business KPIs

This KPI metric will help businesses measure the short-term and long-term business effectiveness. From these metrics, businesses can easily determine the effectiveness of projects. This helps businesses identify weaknesses that need to be addressed in the business process.

Marketing KPIs

This metric in Marketing helps marketing teams measure the effectiveness of marketing campaigns, marketing channels, etc. The effectiveness of a campaign in achieving its set goals can be seen in the corresponding values of the KPIs. The marketing team can easily evaluate the effectiveness, areas for improvement, and focus on a marketing channel.

Project Management KPIs

Managers use KPIs to easily track the progress and effectiveness of each project. This helps easily grasp the effectiveness of each stage of the project, the performance of employees, and the level of effectiveness compared to the initial goals.

Financial KPIs

This type of financial KPIs is used by management and leaders of the financial department of a company. These metrics help track and measure the financial situation of the company. These metrics include revenue, profit, and more.

Sales KPIs

This sales KPI measures the effectiveness of the sales department, the popularity of products, and contributes to the sales revenue evaluation on a weekly/monthly/quarterly/yearly basis.

This metric is not only applicable in retail companies. Products that have been sold can be included in the sales KPI, including both products and services.

Building the KPIs for businesses process

When you have understood the roles of this metric, the following is a simple process to build the KPIs.

Identify the KPI builder

The person responsible for building the KPIs should first be identified as someone who understands the big picture. They will know the work that needs to be done and the goals to be achieved. Based on the set goals and under the guidance of senior management, the person in charge of building the KPIs for each department will outline the KPIs for their department and its positions.

Employees will not directly set KPIs, but they have the right to discuss and contribute ideas to the proposer because they are the ones who will work according to the set KPIs. Therefore, the person setting the KPIs should also consult the opinions of the subordinates to determine the most suitable KPIs for each employee. This will bring transparency to the results and the feasibility of the ultimate goal.

Determine KPIs using the Smart tool

The KPIs need to be accurately determined to unify the working process, focus, and achieve the ultimate goals. These KPIs need to be determined more accurately to choose important, relevant, and achievable indicators.

To achieve these goals, use the Smart tool. Smart is an acronym for the five characteristics that KPIs should have: Specific, Measurable, Attainable, Relevant, Time-bound.

Here are the five characteristics of the Smart tool:

Specific means specific KPIs

KPIs need to be specific and clear. This will help the person setting the KPIs easily consolidate, track, and evaluate them. For example, instead of having employees sell as many orders as possible in a month, set a specific number such as 600 orders, or use a percentage like 80% or 90%.

Measurable means KPIs can be measured

KPIs are metrics that can be statistically and converted into specific numbers. This helps to make it more convenient for tracking, evaluating work performance, and presenting them on tools and task management software.

Attainable means KPIs can be accomplished

If KPIs are not realistic and cannot be achieved regardless of how they are implemented, then those KPIs are worthless. Based on the set goals and the current situation regarding human resources, equipment, and even external factors, set indicators that are appropriate for reality.

Relevant means KPIs relate to the predetermined goals

The KPIs set will help in achieving the predetermined goals because they were set before. Therefore, employees should only focus on tasks that help achieve their goals. Eliminate and ignore indicators that are not important or relevant.

Time-bound means specific deadlines to complete KPIs

KPIs must have a specific deadline. This deadline can be calculated in days, months, quarters, or years depending on each type of KPI.

Apply KPIs and assess the performance

After you have identified the main KPIs, you should then assign tasks and deploy them. During this process, the person who determines the KPIs needs to monitor and grasp the performance of the department or the person responsible. This will enable easy assessment of their job completion.

Evaluate KPIs and calculate bonuses

KPIs are often related to bonuses and are calculated using specific formulas. Managers need to assess the level of completion of KPIs to determine the appropriate bonuses for employees.

Adjust KPIs to fit the actual work completion situation

During the work process, there may be changes to KPIs. This is because there may be tasks that need to be adjusted to fit the actual capabilities and goals of the company. However, these changes should only be made when there is objective monitoring and evaluation over a certain period.

Conclusion

Above is an overview of the basic information about KPIs that you need to understand. It can be seen that this metric is important for managers and is also something that every employee should know because it determines their daily work tasks and affects their bonuses.

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