(upbeat music) To understand how your organization is performing, it is important to develop key performance indicators known as KPIs. KPIs help ensure that the organization and individuals within an organization are effectively achieving business objectives. In these lessons, we will discuss performance metrics and the attributes of KPIs. Have you struggled with aligning performance measures to the strategic plan? Have you ever thought that there are too many measures or that the measures themselves aren't providing a clear indication of business performance? Here, we're going to review the differences between the terms key performance indicators and metrics. Both our performance measures but each has a different level of focus. In an article KPIs versus metrics, tips, and tricks to performance measures, Heyden Enochson communications manager for on strategy consulting group wrote, "Metrics and KPIs are often confused, "but the clear difference is "KPIs are the key measures that will have the most impact "in moving your organization forward." It's easy to use the two terms interchangeably but here's a good way to think about it. "Key performance indicators help define your strategy "and clear focus. "Metrics are your business as usual measures "that still add value to your organization, "but aren't the critical measure you need to achieve. "Every KPI is a metric, but not every metric is a KPI." KPIs provide insight into what your organization needs to measure to achieve your long-term strategic objectives. Strategic plans have at least one KPI per strategic objective to monitor organization performance against the strategic plan itself. Creating KPIs provides focus and clarity undefined performance measures that outline how you'll achieve your major strategic priorities. KPIs have five key attributes. They are; definition. The more descriptive the better. The KPI can measure an outcome such as revenue or margins or progress to a target such as repeat customers or year over year revenue. Defined target, this is the numeric value you're setting out to achieve. Targets need to match with the measurement type and due date. If the measure is a percentage, the target needs to be a percentage too. If the measure is a wrong number, the target should be a wrong number. Reliable data source. Performance measures need to have clearly identified data sources like a database, ERP or MRP system. This gives the measure consistency. Also, the formulas and calculations need to be specifically defined and accessible to ensure alignment across functions. Lastly, the data needs to be verified to ensure its accuracy because data integrity is paramount. Owner, KPIs need to have an owner, an owner is someone in your organization that is responsible for updating and analyzing the collected data. A single owner should be identified for each KPI. Sharing responsibility this way will engage leaders across your organization and foster a more collaborative environment for reviews and action planning. Tracking frequency, identify measures that can be monitored regularly. Regularly reviewing measurements will provide consistent feedback on the process being measured. It will also monitor the effects of any course corrections made in real time. For example, reviewing the measures monthly can provide indicators of process performance that will show whether the measures are performing as expected or that something unexpected happened. Tracking frequency also provides visibility to the effectiveness of any process changes or improvements. Strategic KPIs move from outputs to outcomes. Outcomes are the focus of your strategy. As for metrics, they track and provide data on your organization standard business processes, but they're not the most important metrics your organization needs to measure, monitor, and perform against to make progress with your strategic plan. These performance measures are tactically focused. They monitor a specific process or project. Several business activity metrics contribute to your organization's KPIs. KPIs assess a strategic plans, progress and effectiveness. While metrics monitor activity performance. You can use the goal setting framework called objectives and key results or OKR to track these. These OKR has been used by Google, Amazon and other top tech companies and is designed to create alignment and engagement around measurable goals by clearly defining objectives, what you want to achieve. Identify three to five objectives that are brief, inspiring and time bound. Key results, how you'll measure progress toward your achievements. Identify three to five quantitative key results per objective. This model is effective in part because of its simplicity but also because goals are continually set, tracked and re-evaluated so that organizations can quickly adapt when needed.
