KPI tracking is one of the major tasks at data driven organisations. They cannot function without KPIs.
I was recently working with a startup founder and we were putting together a KPI dashboard. Founder wanted to add more and more KPIs to gather as much insights as he can. But, too many KPIs were not helping in decision making and were creating confusion due to conflicting signals.
But, how to pick the right KPIs?
Selecting right KPIs is important for the business goals. I will walk you through a step by step process of selecting KPIs for your business.
1️⃣ State your business goals
The best framework for thinking about goals is the SMART Framework. SMART stands for Specific, Measurable, Achievable, Relevant, Time-bound.
2️⃣ List all the KPIs related to that goal
A key here is to pick both financial and non-financial metrics. When we’re picking our KPIs, we want to make sure we’re considering all possible options.
3️⃣ Evaluate for importance and ease of collection (rate them)
Now, one-by-one ask:
How important is this metric? Rate it between 1 (not important) and 10 (extremely important)
How easy is it to collect it? Rate between 1 (hard) and 10 (easy)
To determine how important a metric is, ask the following questions:
What impact will it have on your final goal?
Can you choose a metric closer to the initial action being taken?
If this increased by 10%, what would happen?
If this decreased by 10%, what would happen?
To determine trackability of the KPIs you want to think:
How long does it take to gather?
How annoying is it to gather it?
How motivating (or not) is the number?
Give it a score between 1 (hard) and 10 (easy) and write that score on the bottom right corner of the sticky note.
4️⃣ Cull the list
Add together the two scores from the last step and write the total down.
Now that you’ve identified your most important metrics by score, narrow it to the top 10.
5️⃣ Identify 1 leading and 1 lagging measure per outcome
Pick a leading and lagging indicator. Each metric must connect back to the desired outcome or goal. Leading and lagging indicators are needed to take timely action. Sales calls can be a leading indicators of Sales. Website visits can be leading indicators of Sales.
6️⃣ Document your process
Now that you’ve identified what metrics you’re going to use, it’s time to document the process of tracking the metrics.
Answer the following:
Where you’ll get it.
How frequently you’ll report it?
Who is responsible?
Who needs to know?
7️⃣ Monitor, report, and refine
You won’t be perfect at selecting the right metrics. This is vital to make sure you end up with reports that are actually useful. Sometimes capturing the number is harder than you thought. Other times the leading is just not as predictive of the lagging as you hoped.
The key is to recognise these things and adjust.
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