In What Ways Does KPI Benefit An Organization?

Posted by SharonEvans on June 30th, 2013

Owing to the fact that performance is the sole measure of efficiency of any organization, the sole objective of management is to not just to maintain it at a high level but also improve upon the existing levels whenever possible. In order to make progress it is imperative to apply the existing metrics in such a way that particular needs are addressed and necessary measures taken. Using KPI, an acronym for key performance indicators, is one such technique that enables collection and compilation of data that is relevant in determining the future course of action.

Every organization is comprised of several departments and since has its own unique role to play and contribution to make, the KPI involved also varies. But there is a common ground as well namely much of the guesswork is eliminated and the thought process streamlined. Since the indicators of each department are different, whether they are being applied and if they are being optimally used are queries that need to be answered by the particular department in question. However, in spite of the variation in metrics, it is imperative for all the departments to coordinate amongst each other.

There are many ways in which application of KPI benefits an organization, the foremost amongst which is its ability to lend clarity. Having prepared a list of indicators that form the core of any department, management can then decide which aspect needs to be pursued. Not every facet would need attention because there are bound to be some areas that must be doing well. So instead of addressing the entire department a better way entails only drawing attention towards metrics that might be flagging and brainstorming of ways in which standards could be raised.   

With the concept of KPI it is possible to benchmark performance by measuring progress against time and amount of labor invested. While labor in general would have been measured in terms of wages and revenue earned, after the application of performance indicators it is dissected on the basis of more specific details like overtime, shifts, wages and so on, Analysis of these metrics would enable the management to identify the exact problem and diagnose its root cause, thus channeling its energy in the right direction rather than making general statement and policies.

KPI is capable of influencing the internal and external workings of any department. The former is gauged by putting a tangible figure to challenges and weaknesses while the latter is attained by sharing of workload between various departments. While each department has an important role to play by itself, there are times when it requires support from other departments or needs to supplement them. Rather than getting into a conflict, a frank discussion of metrics helps to improve communication and prevent loss of quality that is characteristic of the cascading effect.

Apart from playing a seminal role in day-to-day working of an organization, KPI has an impact on annual functioning too particularly in areas like budget and board meeting. Unlike a normal situation wherein budget is prepared just once a year, application of this concept calls for financial review in every quarter thus rendering the annual budget a follow-through of the last review. Likewise, board meetings are also more efficient as many of the metrics will have been addressed at the ground level itself. In this way, decision making is faster and more effective thus improving performance.

Knowledge of metrics within the organization is not enough to augment performance. To boost it in real terms application of KPI concept is a must because it encompasses both short-term and long-term goals.