Key performance indicators of the enterprise. Analysis of performance indicators of the enterprise
Performance indicators of the enterprise, or key performance indicators (KPI - English), are the main measures of the company's performance. With the help of KPI, one can assess the success of an organization as a whole or in a specific type of activity in which it participates. Success can be considered as the periodic achievement of certain target levels (absence of defects, customer satisfaction, etc.), and the achievement of progress towards strategic goals. Thus, choosing the performance indicators of the enterprise, you need to determine what is the most important priority for the organization.Also, these factors depend on the departments that they measure - some KPI are applied to finance, and others to sales.
Since there is a need for an objective assessment of the actual state of the business, the question arises of how to correctly select the main indicators of an enterprise’s performance. KPIs can reveal potential ways to improve performance. Most often, a balanced scorecard is used to select key performance indicators.
Analysis of performance indicators of the enterprise
There are four types of performance indicators, which are divided into two groups, as shown in the table below.Types of performance indicators
Groups of gauges
Types of meters in groups
Performance Indicators. They are useful in assessing the joint work of different artists, but they do not help determine the productivity of each individual employee.
Performance Indicators (RI - English). Key Performance Indicators (KRI).
Performance Indicators. Tied to a separate group or artist.In this case, the productivity of each employee or group is determined.
Performance Indicators (PI). Key Performance Indicators (KPI).
KPIs are a set of measures focused on those aspects of the organization’s activities that are most important for current and future success.
How KPI Helped Out of the Crisis British Airways
The impact of the company’s performance indicators can be traced back to the example of Lord King, Chairman of the Board of British Airways. In 1980, the company was in a great crisis, and he gathered a group of experts to identify the main factors that were supposed to help the company break the deadlock.
Experts have identified one of the most important indicators of success - the timely arrival and departure of aircraft. While many in the industry concentrated on the timely arrival of flights, the experts decided to focus on the departure. In the case of delayed departure of the aircraft, King received a notification and called the responsible manager at the appropriate airport. Before entering the "personal call" practice, the airport chief or other employees of the company often pushed all the problems to the opposite side, preaching the policy "these are their problems, not ours."After receiving a personal call from the chairman of the board, the heads of the airports began to take measures to recover the lost time, regardless of who caused the delays. Actions included:
- Doubling the cleaning staff, despite the fact that it entailed additional costs.
- Setting priorities for refuelers.
- A set of measures to prevent delays of passengers, starting from the check-in counter.
- Prohibition of late check-in for business class passengers, which was allowed earlier.
Other indicators of the enterprise’s performance, such as the delivery of people in full and on time, were also associated with this factor. Concentration on one KPI gave its results and a chain reaction spread to other aspects of the business:
- Reduced costs due to reduced additional payments to the airport due to less vessel downtime.
- Reducing customer dissatisfaction.
- Less impact on the ozone layer of the Earth through less fuel consumption.
- Improving relations with suppliers due to compliance with the flight schedule, allowing the latter to keep within the agreed service schedule.
- Reduced staff dissatisfaction due to reduced communication with frustrated customers.
Seven characteristics of an effective KPI
On the basis of studies covering both private and public companies, seven characteristics of an effective KPI were identified.Characteristics of an effective KPI
Characteristics of the indicator
Description of the indicator
Non-financial meter (not expressed in dollars, yen, pounds, euros, etc.)
Measured frequently (eg, daily or weekly)
Focused on leadership
Actions taken are based on decisions of the CEO and senior managers.
All employees understand the measurement indicator and the necessary corrective actions.
Responsibility can be assigned to a team or a division of a team working in cooperation.
Having a significant impact
Affects more than one balanced scorecard
The indicators tested for the presence of a positive impact on performance as opposed to ill-conceived gauges that can lead to dysfunctional behavior
How to determine the performance indicators of economic activity of the enterprise
Performance indicators are different from business objectives or goals. For example, a university may consider refusals to students as a key performance indicator, which can help an institution to understand its position in the educational community. At the same time, business may consider the percentage of income from regular customers as a potential key performance indicator.
The main steps in determining key performance indicators are:
- Predefined business process available.
- Existing business process requirements.
- Qualitative and quantitative measurement of results in comparison with the goals.
- Investigation of deviations and fine-tuning of processes or resources to achieve short-term goals.
Key performance indicators are tools for periodically assessing the performance of organizations, business units and their units, departments and employees. Accordingly, KPIs should be understandable and measurable. Processes that are not controlled by organizations or executors are not considered as key factors.
Examples of using KPI in marketing and sales
The main examples where you can use indicators of economic efficiency of the enterprise:
- Acquisition of new customers.
- Demographic analysis of potential clients, levels of approvals, refusals, expectations.
- The status of existing customers.
- Customer churn.
- Revenues from different market segments.
- Collection of bad debts within the framework of customer relations.
- Customer profitability by demographic segments and customer segmentation by profitability.
These indicators of the financial performance of an enterprise are developed and managed with the help of software for managing relationships with customers. The availability of this data is one of the main competitive advantages of organizations.
KPI usage onproduction
Equipment efficiency is a set of generally accepted non-financial indicators that reflect production success:
- Overall Equipment Efficiency (OEE) = Performance * Performance * Quality.
- Operability = Work Time / Total Time.
- Capacity = Total number of parts manufactured / Target number of parts.
- Quality = Good parts / Total number of parts.
You also need to take into account the fact that profitability is an indicator of the effectiveness of the enterprise’s activity, and this factor should also be laid down when developing business processes of any production company.
KPI Application for IT Infrastructure Management
Examples of how you can use the indicators of economic efficiency of the enterprise in the field of IT:
- Availability of information / Uptime computing system.
- Mean time to failure.
- Average repair time.
- Unplanned absence.
Implementation of IT projects
Key performance indicators used in the development of IT-projects:
- Mastered the amount of work.
- Forecast completion
- Working time / month.
- Costs / month.
- Planned expenses / month.
- Planned working time / month.
- Number of new customers.
Supply chain management
Enterprises can use key performance indicators to track progress in achieving various goals, including lean manufacturing, environmental initiatives, cost reduction programs.
In any business, regardless of its size, supply management can be improved through key performance indicators, which include:
- Automated input and approval functions.
- Display of key indicators in real time.
- Single data storage.
- Performance display in real time.
- Eliminate dependence on IT resources.
The main indicators of the financial performance of the enterprise in the field of logistics describe in detail the following processes:
- Sales forecasts.
- Procurement and suppliers.
- Reverse logistics.
Suppliers can use indicators to assess the effectiveness of an enterprise to gain advantages over competitors. With instant access to user portals containing standardized cost and savings templates, suppliers and their customers can exchange important data about the entire supply chain, thereby saving money by reducing the cost of documentation.
Disadvantages of the KPI method
In practice, the control of key performance indicators may be unbearable for some organizations.For example, measuring staff morale is not possible on its own, and therefore can be used as a rough guide, rather than an exact standard.