Through some work with the Police National ITIL User Group, I have been considering how to differentiate key performance indicators and what constitutes a KPI. Despite big clues being in those three words, KPIs are often confused with performance targets and measures. The two can be very different things.
Quite often an organisation will confuse the two terms. It will measure (or will start to measure) many, many performance attributes and call them KPIs, regardless of whether they are key or not. If you have 100 performance measures, it follows that not all of them can be key to the business therefore you have to distinguish between what is a KPI and what is a performance measure. The number of sales and, therefore, profit will be a KPI however, the number of servers maintained may not be, but it is still a useful measure that will contribute towards the KPI (eg, higher maintenance charges will result in less profit).
The danger is that if KPIs are not meaningful, measurable and relevant to the business, then, over time, measurement will become time consuming, will be seen as a waste of time, and will eventually lapse. An organisation has to see the benefit of measuring a KPI or performance target.
A KPI has to be key, has to be an indicator, and has to relate to performance. It does not necessarily have to have a measurement attached to it, For example a useful KPI could be the number of complaints received over the year. Whether this number rises or falls is in itself good indicator of performance and customer satisfaction, without having the need to attach a target such as a 10% reduction. Therefore, the KPI is "to record the number of complaints received in each year". The performance measure or target is a separate value applied to that KPI.
Using the above as an example:
KPI - the number of complaints received in a year
Performance target - a reduction of 10% compared to the previous year
Performance measure - monthly comparison of complaints towards the target
In this way, similar organisations can develop common KPIs, but each organisation can assign their own performance measures and targets, in terms of frequency and percentages. In police terms, the common KPI could be to measure the availability of its mission critical services (eg, command and control or radio services). However, each force could then assign a different measure. For a big force this could be 99.9%, for a smaller force it could be 99.0%. The important thing is that availability is being measured, trends are being established and corrective action is being taken.
Therefore, to keep things manageable, it is recommended that, initially, KPIs focus on those elements of performance that are critical to the success of the organisation, and that these are kept to the absolute minimum. Performance targets and measures should be applied to the elements of performance that contribute towards the KPIs. Again these should be kept to the minimum required to ensure that they can be, and are, measured regularly.