Why KPI Are Important for Management

A key performance indicators or KPI is a kind of quantitative performance indicator used by a company to measure its specific performance against pre-defined standards. KPIs simply measure the extent of success of an activity or an organization where it engages. They allow managers to assess their particular companies in terms of their ability to meet certain defined targets. Key Performance Indicators, however, are not one and the same as performance objectives, which specify the standard of success and what should be measured. KPIs, on the other hand, are used to facilitate communication between management and employees.


The success of a company, whether it is operating, performing well or not, is measured using different kinds of key performance indicators, or KPI. Some use time frame as their measuring tool. Others use indicators that indicate success in certain areas while other use metrics that can measure the speed at which targets are met. Yet, some managers use both measuring tools. Regardless of how the goals are defined, a manager uses KPI to determine whether the objectives have been met, if there are improvements needed, and to see if the company is heading in the right direction.

There are different kinds of KPI, depending on the kind of business a manager has. However, common ones are overall revenue and the number of clients a company serves. The most common KPI is the gross and net profit margin. Both numbers, when measured against pre-defined metrics, can provide the information a management team needs to gauge their teams against goals they have set. The number of employees also measures progress toward achieving organizational goals. This is measured by various metrics, such as the ratio of new employees to the total number of existing employees, and the number of people above the age of retirement.

There are some managers who prefer to focus on the short-term results of key performance indicators. These managers want to know whether their teams are meeting short-term goals, but they do not want to spend too much time or effort monitoring them. Instead, these managers calculate the value of the KPI that they have chosen and compare it to the average value of the goals for the year. If the comparison between the two results is good, then the manager can conclude that the KPI is doing its job. However, if the comparison is bad, then the manager should find a better way to gauge the value of the KPI.

Many organizations define their KPI so that they are able to measure whether the objectives have been achieved. The managers and leaders who define the appropriate KPI often come up with their own lists of factors that need to be considered, such as performance against targets, customer satisfaction, return on investment, employee growth and development, and so on. The formulation of the appropriate key performance indicator for a given objective depends on the factors that the organization believes are most important.

So, we see that both the goals and the objectives of an enterprise are measured with regards to KPI. What managers must understand is that even the most basic key performance indicators may be used to measure the objectives and the performance of an enterprise. What is important is for managers to choose the right metrics measure and the appropriate key performance indicators. This will make it much easier for them to determine where the gaps in performance exist and how to close them through effective management solutions.