What are KPIs?
What are KPIs, you ask? You’ve come to the right place to learn! In this article, we’re going to quickly teach you just what KPIs are. We’ll also tell you what metrics are. And as a bonus (you’re welcome), we’ll teach you to understand the sometimes subtle differences between the two.
Just think: In about five minutes, you’re going to know a ton more about this than you do now.
So let’s dive in.
The Definition of KPIs
The standard definition of a KPI—and that’s Key Performance Indicator, in case you didn’t know—is pretty numbing. Here it is, as proof:
Key Performance Indicator: A quantitative value (a number or ratio) that determines how effectively an entire company, large department, specific work group, business process, or individual employee is achieving organizationally defined goals and objectives.
But if you think of it another way, it will suddenly make a lot of sense:
KPIs are a way of seeing how well you’re doing.
That’s it. Simple as that. We can get into lots of specifics (and we will), but that should be your main takeaway here. It’s something you can measure, and put a number on—and then use that number to determine how well you (or your company, business unit, etc.) is performing. That’s the “P” in KPI.
Now that you know that, let’s go back to that dry definition and flesh out some of the details for you. In English.
A KPI is a number—often expressed as a ratio or percentage—that shows how well an organization, department, work group, or even an individual employee (like you!) is doing in its job to help the business succeed. KPIs can be used to assist your organization with both its short- and long-term strategy for productivity, growth, and profitability. That’s because you can’t improve something—or have any idea how much you’ve improved it—until you measure it. This is the bedrock of data-driven improvement.
What are Metrics?
That’s a really good question. Here’s an even better one:
What’s the difference between a “metric” and a “KPI”?
Glad you asked.
A metric, for the purposes of our KPI 101 discussion here, is any activity in a business that can be measured. You can measure a lot of things in a business; heck, there’s no shortage of data these days. But a metric, by itself, may not reveal to you the performance of a person or process. That’s the difference between a metric and a KPI. A KPI will contain metrics (often more than one, compared as a ratio) that shines a spotlight on results. A metric, by itself, may or may not. Therefore—stay with us here—all KPIs are metrics, but not all metrics are KPIs.
That bears repeating:
All KPIs are metrics, but not all metrics are KPIs.
KPIs vs. Metrics – a Simple Difference
That might seem a little confusing, but this will make it concrete for you real fast. Consider these three metrics, and ask yourself: Which of them qualify as KPIs?
- The number of widgets produced per day.
- The ratio of total employees to the number of people working in a certain department (e.g., 165 employees per HR department employee, an example of the “HR Headcount Ratio”).
- The number of pencils ordered per year.
We’re sure you figured this out already (we know you’re smarter than you let on!), but let’s walk through the logic of it, regardless:
Any business needs to know how many widgets it makes—and knowing how many it makes each day is important. Like, KPI important. Ditto for the number of employees a certain department supports, or is responsible for (“Does this department really need 600 people to run?”).
Which leaves us with the pencils. Sure, it’s not too hard to track the number of pencils a business uses each year, but does that satisfy either the “key” or “performance” aspects of “KPI”? Does it serve as a useful report card, or performance gauge, for the business?
Of course not. You knew that.
There’s More to Learn
And guess what? You also now know, what a KPI is. You know what a metric is. You know the difference between the two. And you can even impress your peers by nonchalantly noting that “while all KPIs are metrics, not all metrics are KPIs.”
Congratulations. You’re not just smart. Your OpsDog smart!
In our next article, we’ll dive into the concrete… no, maybe that wasn’t the best phrasing. But we will serve up a stack of concrete, real-world examples of KPIs from such diverse industries as banking and manufacturing, and functions as diverse as human resources and marketing. It’s a fast, fun read; check it out.