Defining Key Performance Indicators

Ericka Koehler

KPI

Key Performance Indicator and Importance

KPI stands for Key Performance Indicator. Some definitions are the following.  Key performance indicator refers to a set of quantifiable measurements used to gauge a company’s overall long-term performance (Twin, 2019). Meanwhile, Oxford’s dictionary (2019) says that a key performance indicator is a quantifiable measure used to evaluate the success of an organization, employee, etc. in meeting objectives for performance. Then, we need to mention that some people may refer to a KPI as a key success indicator, or KSI.

Now, it is necessary to understand that the KPIs are not the same for all businesses. Not all apply for each business. KPIs vary between companies and between industries, depending on performance criteria (Twin, 2019).  A key performance indicator relates to a business objective that is integral to the success of the organization.

The strategy for formulating KPIs starts by understanding what your organizational objectives are, and how you plan on achieving them. To evaluate the relevance of a KPI we can use SMART criteria, it means Specific, Measurable, Attainable, Relevant, and Time-bound. We need to consider if an objective is specific, if it is possible to measure the goal, if it is realistically attainable, if it is relevant for the organization, and the time-frame for achieving the goal.

Examples of KPI

Examples of KPI are many since they can be used for many things. To infuse KPIs into business strategy four attributes must be assigned to the metric. That mean actions are taken depending on the performance being indicated. If you can apply all four of these attributes to your metrics then you have KPIs (Jackson, 2016). Those attributes are: The metric has a timescale associated with it, has a benchmark, has a reason to be reported to an actor (in this case “actor” is the person who “acts” on the information) and the last attribute is the action taken if a problem occurs (Jackson, 2016).

For example, imagine this case. MTV3, a media company run websites in Finland. It is important for the company to retain high page-views. The most important thing is its front page. The company wants to know when to change content in the front page to gain more visitors.  To know this, it will be necessary to monitor the page in real time. Two KPIs that can be used in this case are the bounce rate and the page time index. Bounce rate is the number of single page visits divided by the total number visits to the website. The page time index is a sum of the total time spent on the page divided by the total visits to the page as a ratio (Jackson, 2016).

  • KPI #1: Bounce Rate
  1. Time period: Hourly
  2. Benchmark: 15 percent based on the average bounce rate. If the page scores below this number, this is good. If the bounce rate is above 18 percent (which is a 20% deviation from 15%), then the actor needs to take action.
  3. Actor: Editors working on the page.
  4. Action taken: First, look to see if the page time index is dropping at a similar rate. If so, it is necessary to change the content because visitors to the page are less interested and spending less time reading. If the page time index is steady, it could mean that the article needs to improved. For example, the headline may need to be worded in a more interesting way or the article needs more links to related content.
  • KPI #2: Page Time Index
  1. Time period: Hourly
  2. Benchmark: 85 seconds based on the average page time index. If this time falls by 17 seconds or more (which is a 20 percent deviation from 85), something must be done since it is deviating away from average levels. If the time spent on the initial page is lower, but total time is still about 85 seconds, it means visitors are visiting other web pages within the site which is not  a problem and no action is needed. If the time is more than 85 seconds, this is positive as well.
  3. Actor: Editors working on the page.
  4. Action taken: If the KPI is lower than 20 percent deviation, first check the bounce rate. If it is deviating by the same amount, then you should change the page content. If it is higher than 85, but the bounce rate is OK (or lower) then there might be a usability problem. Then, you should request IT to investigate if there is a technical issue.

KPI aligns to an Organization’s Business Goal

It is important that key performance indicators align to an organization’s business goal. KPIs need context to be effective. This can only be accomplished if you explain not just what you’re measuring, but why you’re measuring it (“What is a KPI?,” 2019).

 

    References

Jackson, S. (2016). Cult of Analytics – Data Analytics for Marketing. 2nd ed. London:

Routledge. Oxford Dictionary: Key Performance Indicator (2019). Retrieved from:

https://www.lexico.com/en/definition/key_performance_indicator

Twin, Alexandra (2019). Investopedia. Retrieved from:

https://www.investopedia.com/terms/k/kpi.asp

What is a KPI? (2019). Klipfolio. Retrieved from:

https://www.klipfolio.com/resources/articles/what-is-a-key-performance-indicator