What are Key Performance Indicators and why do we need this system?

To increase the coefficient of performance of employees, enterprises introduce a special system of Key Performance Indicators. It allows to define current tasks, and with the help of different bonuses, programs to stimulate workers in this direction. This approach makes people as interested as possible in the realization of the goals, which increases the profitability of the organization. Let’s describe what KPI indicators are, their types, advantages, and disadvantages of their implementation.

 

What are they

 

This is a special way to find out how organized a group of individuals is by the requirements of the company. So business owners can determine the effectiveness of a particular work process and adjust by paying bonuses. In doing so, the performance data of each employee is tied to the overall values of the entire team.

 

In this case, it is important to make sure that the different services of the organization do not contradict or stop the development, but act in a unified direction. With the help of active staff motivation and comparable indicators, it is possible to achieve improvement in all areas: sales, attracting new customers, the quality of shipments, and so on.

 

Types of KPI

 

The Key Performance Indicators system has no limitations in the choice of priorities or formulas to be applied. Therefore, different companies may have similar ways of calculating their performance, as well as quite different ones. Most often owners are interested in the following items:

 

  • costs – how much resources were spent in monetary terms; performance – how customers respond to changes in strategy and how well this correlates with goals;
  • productivity – the totality of used capacities;
  • efficiency – the attribute that determines how the solution works and calculates it by the ratio of values (e.g., the ratio of revenues to expenditures);
  • outcomes – whether or not you achieved the designated objectives.

 

 

Do you need to integrate calculations into business?

 

Of course, because it is a great way to evaluate the work of employees, departments, and the organization as a whole. The owner will not only be able to find out the economic condition of his child, applying the method of comparing different periods in dynamics but also to improve:

 

  • Replace fixed salaries with salaries commensurate with each individual’s actual labor. This will eliminate situations in which one works for three while the other imitates employment.
  • Develop appropriate instructions to improve the results: improve service, sales, cooperation between departments, etc.
  • Define the goals and mission of the company, optimize the labor activities of supervisory positions.

 

Therefore, knowing how to calculate the KPI indicator according to the formula is necessary for any business that needs an evaluation analysis of the whole sphere or any of its stages.

 

 

Pros and cons

 

Pros include:

 

  • Identification of problem areas in the enterprise as a whole and for each sector separately;
  • control over the quality of services;
  • monitoring of human resource activities;
  • Development of effective strategy of further actions (strengthening of strengths, elimination of weaknesses);
  • evaluation of advertising campaigns and promotions;
  • calculation of the daily plan for each employee.

 

The disadvantages of such systems include:

 

  • Calculating the effectiveness of KPIs is difficult, and therefore requires labor, time, and money, a big the difference between online paystubs and excel sheets
  • people are often wary of innovations and do not understand why they are beneficial to them;
  • It will not be possible to fit KPIs to “creative” employees, accounting, the IT department, the office, and others who are not engaged in sales.

 

Conclusion

 

With a KPI system the company rewards the employee for getting the results they want, and the employee is interested in getting results on par with the company.