Understanding KPIs to Improve Performance

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Time to Read | 7 mins

Key Performance Indicator Reports Explained – Understanding KPIs

A company’s success is made evident when it is successfully progressing towards fulfilling its objectives. However, meeting organisational targets can be a tough task for management; thus, they resort to a performance management technique known as selecting Key Performance Indicators (KPIs). Understanding KPIs will start your company on new heights of success.

The KPIs are specific to an industry and require a lot of expertise when it comes to reporting them. If reported inaccurately, they can lead to losses for the business.

So, if you are a part of your organisation’s management, here is an article that will take you through the answers to questions that will help you in understanding KPIs.

Here, we have used a sample report for promoting better understanding of KPIs amongst those who are introduced to the word for the first time. KPI reports are also known as templates with a number of complex components, which will be discussed in brief.

What is KPI?

Every organisation is set up with an aim to achieve its long term objectives. KPIs are the key measures that management can implement to make sure that performance is directed towards achievement of these goals. They comprise performance measurement criteria as well as tools for the same.

To understand KPIs in simpler terms, these are the factors that are used to bridge the gap between business objectives and performance.

What is a KPI report? 

Identifying the deviations in the performance of, say, production staff, is not useful to an organisation if it is not tracked over time and compared with ideal performance. Hence, we need a tracking mechanism for KPIs. KPI reports are nothing but strategic tracking methods of an organisation’s performance.

For instance, if you want to track the sales made by every region in which the organisation is operating, you need an answer to several questions, including: What are the targets of each region? Who is in charge? Who will bring in the accurate information? You need to create a report to present all this information in a systematic order.

Being a comprehensive performance analyser, the KPI report should always contain adequate information, such as what the individual targets are for each region, who is responsible for meeting them, what the deviations are, the reasons behind them, and whether or not the information is correct. Also, report creation should be a regular process for the success of the organisation.

No KPI report should be just text. For understanding KPIs better, the report should have an ample number of pie charts, bar graphs, line graphs, and other diagrams. Visual representation of data is easier to understand and retain.

What is the importance of KPI reports?

Today is the age that is ruled by data and analytics, more than ever before. Therefore, all organisations are engaged in generating enormous amounts of customer data in order to promote their business in a more targeted fashion. This information includes the details of customers who visit the websites, stores, and other outlets; sales made through each channel; and more.

The data collected by an organisation’s database can be categorised as follows: strategically important for operations to improve, data collected through sales automatically, and irrelevant data that just exists.

So, by forming KPI reports, managers try to branch this data into the three categories, eliminating the irrelevant part of it. The customer data is stored in the database, and the pertinent information is retained for creating reports. The managers then create reports to present the critical information in a systemised and visual format to enable better understanding of KPIs.

By collecting data through reports, one is not only refining data, but also making it possible for the general staff of the organisation to understand how the metrics and KPIs need to be altered to align performance with objectives. They allow an impeccable approach to monitoring performance, identifying deviations, and devising an improvement process.

How are KPIs and metrics different?

KPI is a type of metrics that is aligned to the key business objective. Its aim is to study performance with respect to the bigger picture, i.e. against organisational goals. It is the purpose of driving growth that encourages organisations into working on KPIs.

6 Step process to KPIs

KPIs are concerned with the overall objective of the business. They deal with creating a time frame for the achievement of goals without getting distracted by taking too much into account.

On the other hand, metrics are measures or numerical values. This data is generated when each performance indicator in the above example is monitored closely. Analysts use a series of metrics or individual measures to reach a conclusion.

Metrics are essential for analysing the performance of an organisation because they offer a measure of the health of business activities. For instance, if there is a defect in the production line, one cannot see it unless the metrics depict that the rate of production is declining gradually. In this way, the organisation can take timely steps to overcome deviations.

KPI vs dashboard vs KPI report

The dashboard is the primary visualisation tool used by the analysts. They use a blend of charts, graphs, and tables to illustrate the KPIs and metrics to make understanding KPIs easier and possible by just a glance.

A report, on the other hand, focuses on allowing others to analytically interpret the underlying measures, using the graphs, tables, and charts on the dashboard for reaching decisions.

When it comes to visualising KPIs, several people confuse dashboards for reports and vice versa because they share similar functions and advantages. But the way they are used in a business environment makes all the difference.

KPI dashboard

For understanding a KPI dashboard, you need to know that they are often used in the operational or day-to-day aspect of performance monitoring. In fact, if used regularly, they render themselves better than reports as they can be comprehended at a mere glance.

Each department creates its own dashboard; the sales team will create a sales dashboard and the purchases department its own. Once created, the entire department can use the dashboard to see where they are heading against others. The metrics on these dashboards might include the number of leads, sales, or calls generated in a day.

KPI report

On the one hand, the dashboard allows the employees to see their everyday performance at a glance. And on the other, the report gives them some room for analytical thinking. It comprises answers to questions such as: what is the purpose of KPIs, the fluctuations in the data, and why are the deviations arising? Now, the analysts can dive into the historical data of the company for deriving answers.

The monthly sales meetings, or other points of reviews, are the times when one studies the tabular report data. They are not created on a regular, day-to-day basis. Also, they allow the understanding of KPIs by giving a historical context and interpretation.

Now, the question is, which amongst the two you should choose. Well, there is no rule for the KPI tools and templates you can use for measuring performance; you can use the one that you feel is more appropriate for your objective. In general, the reports are used by businesses to analyse the operations and dashboards for daily monitoring.

However, you should not stick to the above notion if you don’t want to, and you can use both the tools interchangeably. After all, the key is to measure performance, no matter how that is done.

Different types of reports

When understanding KPIs, it is crucial to know the types of reports you can prepare to represent your analysis. Here are the three types of reports you should know:

  • Analytical reports

Such reports are viable across all departments in an organisation and provide detail about the KPIs. It uses the KPI data to answer the questions arising from the peaks. While a static variation of these reports is used to show historical values, a more dynamic version can be created to investigate how individual metrics have to be broken down.

  1. Operational reports

These are more in line with KPI dashboards as you can use them to analyse the day-to-day operations in a business. The information depicted on these charts is useful to people involved in the very activity for which the report has been designed. These individuals can now use this information to make decisions and take action.

For example, the production department can use the report of units produced every day to keep a tab on the available inventory of raw materials.

  1. Strategic reports

These are more apt for understanding KPIs as indicators of the health of the business. One can study if the business is going in the right direction through strategic analysis. They are specially designed for the top tiers in management, such as business owners and shareholders.

How to build a KPI report

There are five steps that you need to follow to create a KPI report:

  1.   Create an overview

The foremost step in reporting KPIs is to form an outline of the organisational objectives against which the answers are sought. The questions which need to be answered are:

  • The objective of the report.
  • The audience of the report (owners, shareholders, management, employees, supervisors).
  • The use of the report and its type, whether strategic or operational, static or interactive.
  • By when it should be ready to be distributed amongst the audience.
  1.   Define the KPIs

Before understanding KPIs, it is crucial to give the audience an idea about the KPIs you are aiming to analyse. Make sure that they are aligned with the overall objective of the report and answer the questions about how well employees are performing with respect to it.

It can be tricky to organise volumes of data to fuel the KPIs. However, you need to do that in a manner such that the data that is used is, in fact, of strategic importance and not redundant.

Also, you need to answer the questions, such as where you have collected the data from, how well one can rely upon the source, and whether it can be automated or not.

  1.   Present your KPIs

Now, you need to select appropriate charts, graphs, and tabular formats to represent the data in a clear and precise manner. Make sure that it is comprehensible at a cursory glance. Also, they should focus on one parameter at a time which is relevant to the objective of the report.

Moreover, check that all the parameters are placed in a logical order to maintain the flow of the information.

  1.   Build a prototype

You can create a draft with the help of dummy data if you are not able to lay your hands on relevant sources and distribute it to your colleagues and stakeholders. Also, to encourage consensus, you can add a one-point feedback mechanism to your report.

  1.   Refine and release

Once you have finalised the actual report, you can distribute it to the audience. Reporting KPIs is like any other business process that needs to be updated over time. Organisational managers should build in regular reporting periods to review and maintain performance.

Now that you know how understanding KPIs takes you through a crucial aspect of management control and direction, you can use the above-mentioned techniques for reporting them.

In the end, it requires a lot of organisational research to know where the organisation is heading. However, not all data collected through this research can help you determine lags in performance. Therefore, you need a reporting mechanism to sort the data and present it in order for it to be analysed and understood easily.

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