1. Setting goals:
You must have clear, measurable goals. These goals must be consistent with the organization's vision and strategy.
Example: If you aim to increase market share, one of the key indicators associated with this goal could be “Percentage Market Share”.
2. Needs analysis:
You should analyze the needs that need to be measured for each goal.
Example: These needs could be specific process requirements, indicators that reflect financial performance, customer satisfaction, efficiency of internal operations, etc.
3. Identify sub-indicators:
After analyzing the needs, sub-indicators are identified for each need. Sub-indicators are selected based on their ability to provide accurate and tangible information about performance and their ability to change over time.
Example: Suppose you have a retail organization that aims to increase market share. In this case, the following sub-indicators can be identified:
a. Annual growth rate of sales volume.
B. Percentage of new customers.
C. Average value of each customer's purchase.
d. Overall customer satisfaction level.
F. Customer retention rate.
4. Identify key indicators:
Based on the sub-indicators, the main indicators that will be used to measure performance are determined. These key indicators should be few, specific, measurable and directly relevant to the objectives set. These key indicators can be a ratio, number, rate, time average, or any other measure that reflects desired performance.
Example: After defining the sub-indicators, key indicators can be identified that combine these sub-indicators and measure the overall performance of the organization. In the example above, “Percentage Market Share” could be the main indicator that combines all the sub-indices mentioned above.
5. Determine targets for indicators:
After identifying key indicators, target performance levels for each indicator must be determined. These levels can be defined based on an organization's internal standards, industry standards, or globally accepted standards.
Example: If you are using the “percentage of continuing customers” indicator, you could set your target performance level to be when maintaining the percentage of continuing customers at 80% or more.
6. Providing data and reports:
A data structure and mechanisms must be provided to collect the data required to measure key indicators and provide appropriate reports. Performance management systems or data analysis tools can be used to provide accurate and regularly updated information.
7. Review and improve indicators:
Key indicators should be reviewed periodically to ensure that they remain relevant and effective in measuring performance and achieving objectives. Changing circumstances may require that key indicators be modified or new indicators added to reflect changes in needs and objectives.
When defining KPIs, the decision must be based on reliable data and specific criteria. The management team and people involved in the organization must also participate in this process to ensure everyone's understanding and commitment to the specified indicators.
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