KPI (Key Performance Indicator) is the key indicator of effectiveness. This notion has many interpretations. It is often seen as a planning indicator that influences bonuses. For business in general KPI is data for making a decision. On every managerial level - operational, analytical and strategic - there will be a separate set of reports and KPIs. It is important to divide them by the meaning and render this visually so that they are not lost among all other indicators. I single out three types of indicators: plan-fact, standard and operational indicators.
Plan-fact indicators are those which should follow a strict plan, and we aim at keeping to that plan, we look out for any deviations. In other words, these are gross indicators; the more, the better. If the plan is accomplished, it is good; if not, it is bad.
Standard indicators are those which have preset limits of the norm, for example, % of the payroll in the revenue, or % of faulty products. The lower the costs, the better. But if we render these figures in KPI, it might lead to nonsense - fire everyone and economize on that. This is why such indicators are tied to a share. The norm can also be the average mean, average purchase price of raw materials. If the cost is above average, it is bad, and we bring on the 'red' indicator.
Operational indicators do not follow an approved, documented plan, but they are still controlled and compared in a dynamic perspective. For example, the average check or conversion would follow the principle of 'the bigger, the better'. They will be changing from month to month, depending on the season and competition on the market. There is often no point in carefully planning and approving them. It is important to notice their growth or fall promptly.
Therefore, the key indicator can be interpreted as 'good-bad'.But sometimes it happens so that KPI has no regulating traffic lights. Sometimes we look at several key indicators collectively and make a conclusion about what is good and what is bad. For example, the number of projects at work. Even if the number is decreasing, we cannot say whether it is good or bad. Not until we compare it to the average check, target dates and other indicators in this context.