You have, no doubt, heard or even implemented SMART (or even SMARTER) KPIs to achieve your goals. In case you have not heard of this before, here is a quick overview of this acronym:
S –Simple. Simple means that it must be easily understood by even a lay-person. You can achieve this be making the KPI well defined and unambiguous with a clear definition. Vague KPI’s can lead to confusion and misinterpretation leading to unsuitable behaviours.
M – Measurable. Measurable means that you cannot choose something that is based on feelings or estimates, it must be a KPI you can measure and that has clear criteria.
A – Achievable. This means that the goal for the KPI must be attainable, and not pie in the sky. If the goal of the KPIs is unachievable (or would take too long to achieve) it can be discouraging to employees and managers alike.
R – Relevant. Relevant means it must be meaningful to what you want to achieve and drive the right behaviours in the team that is being measured. You know your KPI and goal is relevant if it relates to a very specific strategic aim of your business.
T – Time bound. Your KPI and the attached goal must be time-bound, i.e. you want to achieve this within a week, month or even a year. It is also important that your KPI and the data used to measure it can be collected in a timeous manor. This means that operational KPIs must have the data available daily and/or weekly, tactical KPIs must have weekly/monthly data available, and more strategic KPIs must have annual data.
The above explains setting up SMART goals and KPIs. From SMART you can then advance to SMARTER goals and KPIs, where:
E – Evaluate. This means that once you have set your goals and have the correct KPIs entrenched you need to check that you are achieving this, or at least heading in the right direction.
R – Re-adjust. This means that if you are not achieving your goal, you need to make a change in what you are doing. If you have achieved your goal, it means that you need to move to the next goal or stretch to achieve the next level.
The above guidelines are great, and can really help pick the right KPIs, but there are some other factors that you also must consider. For truly great KPI’s you need to go beyond SMART(ER).
Verifiable
Any KPI, measure or metric needs to be verifiable. Verification is a process to support and corroborate your KPIs. This means that how the data is collected and how the KPI is calculated needs to be checked, to ensure consistency over time. Practically this means that collection methods need to be tested, tools need to be calibrated and all calculations be double check on a regular basis. It also means that data, both what is collected, as well as the results of the calculations must be sense checked.
Attributable
Being achievable and relevant is not enough, if the department’s KPI is not something that is attributable to that department. If the department does not have a direct impact on the KPI, it will mean the drive for improvement will dwindle to zero and the KPI may be considered unfair and discourage employees and managers. You will know it is realistic if the people, who are affected by and can impact the metrics, buy into it.
Responsive
This leads to responsive. If the KPI does not respond quickly to changes or improvements, it can also discourage employees and managers. This means that if a change is made this week, the results should be measurable by next week, not only next year.
Comparable
Your metrics need to be comparable. This means that you can must be able to compare what you measured, with-in context. For instance: comparing weekly flowers sales for the week prior to Mother’s Day to sales during any other week of the year is fruitless, but comparing the weekly flowers sales prior to Mother’s Day from one year to the next is meaningful. Another example would be measuring the yield from one manufacturing batch to the next batch of the same product.
Cost effective
Another important factor is that the collecting of data and calculation methods need to be cost effective. Ideally the KPI should be based on information that is readily available and easily accessible and not require new systems to be put in place. The collection of data and calculation of the KPIs should also be automated as far as possible.
Innovation
The final additional requirement that should be considered is that the KPI should not prevent innovation. A KPI should not stand in the way of improving, changing or radically redesigning methods, systems or processes which can improve the business outputs.
While we all know the importance of measuring your business processes to ensure you are managing them, it is equally important to ensure that you are measuring them effectively and efficiently.