Lean Definition

Key Performance Indicators (KPI’s)

One of our most asked questions…what is the definition of KPIs/how do you define KPIs?

Key Performance Indicators (KPIs for short) is an industry jargon for a type of Measure of Performance. Vital measurement tools showing how the business is performing, from the shop floor, or Gemba level feeding right up into company target and goals. KPIs are commonly used by an organisation to evaluate its success or 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 achievement of some level of operational goal (Zero defects,10/10 customer satisfaction). Accordingly, choosing the right KPIs is reliant upon having a good understanding of what is important to the organisation.

What is important often depends on the department measuring the performance- the KPIs useful to a Finance team will be quite different to the KPIs assigned to the sales force, for example. Because of the need to develop a good understanding of what is important, performance indicator selection is often closely associated with the use of various techniques to assess the present state of the business and its key activities. These assessments often lead to the identification of potential improvements; and as a consequence, performance indicators are routinely associated with performance improvement initiatives. Avery common method for choosing KPIs is to apply a management framework such as the Balanced Scorecard.

Key performance indicators (KPIs) are ways to periodically assess the performance of organisations, business units, and their division, Departments and employees. Accordingly, KPIs are most commonly defined in a way that is understandable, meaningful, and measurable. They are rarely defined in such a way that their fulfilment would be hampered by factors seen as not controllable by the organisation or individuals responsible. Such KPIs are usually ignored by the organisations. In order to be evaluated KPIs are linked to target values so that the value for the measurement can be assessed as meeting expectations or not.

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