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How to Create a KPI in 5 Simple Steps (Video)

By Patrick Thean

    Fri, Mar 1, 2019 @ 04:47 PM KPIs & Dashboards, Strategy Execution

    The common mistake many companies make is to start creating a bunch of Key Performance Indicators (KPIs) for their 5 Simple Steps to Create Useful Key Performance Indicators (KPIs)company. They start with a burst of energy, gather together the team and work on KPIs in a quarterly planning session. They ask, "What do we need to measure in each department?" This produces 18 to 25 KPIs, a couple for each key executive to work on. Convinced they have changed the company, they dash off excited to see what results they will generate in the upcoming quarter. What they should be asking is "How do I create a KPI that measures my team's performance?"  A quarter later, many are demoralized and not much progress has been made measuring these KPIs. They lose steam and by the 3rd quarter, it's back to business as usual.

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    I have seen this many times before... If this resonates with you or you are wincing, then read on.
     
    The problem is they started with the wrong question. "What do we need to measure in each department?" or "How do I create a KPI?"  They really should be asking, "what business problem do I need to solve?"
     

    How to create a KPI that drives performance with these five steps:

     

    1. What problem do I need to solve? Pick one for the company that is really bugging you.
    2. How do I measure progress? Use a leading indicator to measure.
    3. What is the Red-Yellow-Green success criteria?
    4. What actions should I take to get it Green when it is off track? 
    5. What actions should I take to solve it when it's Red or Yellow?
    Start with just 1 or 2 KPIs. The secret of success is not in the KPI. The secret of success is in the actions you take to move the KPI towards your goal, not in the measurement itself. Don't measure everything that moves, measure what you want to move! Rather than having 18-25 KPIs, just do 1 or 2. Focus on the actions, get value, get success, and get momentum. True improvement only comes from creating a process, not doing an event. Write out your path of progress as you create a KPI dashboard that works for you and your team.
     
    If you focus on a couple of KPIs each quarter, before you know it, you will have 8-10 KPIs that are action-oriented that really bring positive impact to your business.  Again, ask yourself "How do I create a KPI that drives the right actions for my team?"
     
    Looking for some KPI Examples to help get you started? Check out our additional resources:
     

    33 KPI Examples to Measure Productivity & Prevent Organizational Drag

    25 KPI Examples for Manufacturing Companies

    Employee KPI Examples: How to Measure What (or Who) You Want to Move (Video)

    KPI Examples for Successful Sales Teams

    Marketing KPI Examples

    10 Best Employee KPI Examples

    Rhythm Systems KPI Resource Center

    Rhythm Systems KPI (Key Perfomance Indicator) Guide  

    Photo Credit: iStock by Getty Images  
    Editor's Note: This blog was originally published on March 27, 2012 and has been updated.
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