What is KPI

A performance indicator or key performance indicator (KPI) is a type of performance measurement. An organization may use KPIs to evaluate its success, or to evaluate the success of a particular activity in which it is engaged. Sometimes success is defined in terms of making progress toward strategic goals,but often success is simply the repeated, periodic achievement of some level of operational goal (e.g. zero defects, 10/10 customer satisfaction, etc.). Accordingly, choosing the right KPIs relies upon a good understanding of what is important to the organization. 'What is important' often depends on the department measuring the performance – e.g. the KPIs useful to finance will be quite different from the KPIs assigned to sales. Since there is a need to understand well what is important (to an organization), various techniques to assess the present state of the business, and its key activities, are associated with the selection of performance indicators. These assessments often lead to the identification of potential improvements, so performance indicators are routinely associated with 'performance improvement' initiatives.


Categorization of indicators

Key performance indicators define a set of values against which to measure. These raw sets of values, which are fed to systems in charge of summarizing the information, are called indicators. Indicators identifiable and marked as possible candidates for KPIs can be summarized into the following sub-categories:

  • Quantitative indicators that can be presented with a number.
  • Qualitative indicators that can't be presented as a number.
  • Leading indicators that can predict the outcome of a process
  • Lagging indicators that present the success or failure post hoc
  • Input indicators that measure the amount of resources consumed during the generation of the outcome
  • Process indicators that represent the efficiency or the productivity of the process
  • Output indicators that reflect the outcome or results of the process activities
  • Practical indicators that interface with existing company processes.
  • Directional indicators specifying whether or not an organization is getting better.
  • Actionable indicators are sufficiently in an organization's control to effect change.
  • Financial indicators used in performance measurement and when looking at an operating index.

Key performance indicators, in practical terms and for strategic development, are objectives to be targeted that will add the most value to the business.

Reference:  Wikipedia


For more detailed definitions, check out these resources: