KPI / Key Performance Indicator

KPI (Key Performance Indicator) is a number that measures actual performance. Such an indicator can be developed for the entire company, individual departments or processes, or even to measure the progress of projects. If the indicator is good, it clearly indicates how well we are working. If we create the indicator incorrectly, it often measures and rewards not the performance, but its appearance, the waste of resources.

KPI, as the name suggests, is a Key Performance Indicator. This can be used to quantify the results actually achieved in an area, a process or any company operation. 

Strategic objectives and basic processes are very important in the life of a company. Such a process is, for example, the development of production, sales and sales. However, these processes are only worth something if they deliver measurable performance. They are moving forward, and these processes are not just based on vague formulations. 

Ever since there have been profit-oriented economic organizations in the world, they have tried to measure performance. There are countless good and some less good index for this, the Key Performance Indicator stands out among them. This characterizes a company's main operation or certain processes or projects. It all depends on how the indicator is developed. If we create the rules well and carefully, the KPI can measure progress numerically. If we don't make the rules well, the indicator does not measure the progress, but only the effort - whether it is useful or not. 

If, for example, the indicator is based on how much revenue the salespeople bring in, then more revenue means not only a better indicator, but also more profit for the company. If the basis of the indicator is how much the salesperson works, then a lot of time spent at work results in a better indicator. However, this is not necessarily better for the company. Maybe the sales people just sit in the office so that the department gets good points, but they don't work. They may get paid a lot because they spend a lot of time in the office, but the revenue will not be higher. 

The above example is banal, but countless studies show that employees, departments, partners, and even entire countries adapt surprisingly well to the current KPI. This is good news if the indicator is good, but bad if it is not. History is full of companies and countries in which everyone adapted to bad KPI based on bad interests, and this led to failure.

A good KPI can be developed for anything. KPI can be developed for the entire company. KPI can also be created for certain areas or specific projects. KPI is especially important in areas where the manager does not fully see the process. IT development is typically such an area. Everyone here is throwing around words and phrases that we don't even understand half of. In such a situation, a well-designed KPI will greatly boost the maintenance of trust and increase the chance of achieving an actual profit or loss, P&L. 

In the case of KPI, we can also develop alarm levels. If, for example, revenue falls below a certain level, a well-developed KPI can alert you in time, and management can intervene. The same can happen if the costs per unit of performance are too high in a sub-process.