How to Set KPIs in 5 Steps

Follow these 5 practical steps for how to set KPIs, and easily develop meaningful performance measures, indicators and metrics.

Taking the right approach for how to set KPIs (or develop performance measures or metrics) that are meaningful is important. KPIs should be valuable tools to manage your organisation’s or business’ performance. But if you don’t have a rigourous process for setting KPIs, then there’s a good chance you are experiencing these problems:

• measures not being used because no-one sees them as relevant
• no clear links between your measures and your strategy
• no idea how to measure your goals, especially those intangible, qualitative goals

It’s too easy to take a simplistic approach to setting KPIs.

If this sounds like your experience, then the following five steps will guide you in how to set KPIs, performance measures and metrics that are meaningful (email this page to yourself or a friend):

• Step 1: Get very clear about what a KPI or performance measure truly is, and isn’t.
• Step 2: Evaluate your existing KPIs and performance measures to decide what to keep and what to cull.
• Step 3: Make sure your goals are measurable before you develop performance measures.
• Step 4: Don’t use brainstorming to set KPIs! Use this deliberate technique instead…
• Step 5: Build buy-in among the people who you need to support the KPIs.
• Bonus: Learn more about how to set KPIs and develop meaningful measures on the Measure Up blog.

Step 1: Get very clear about what a KPI or performance measure truly is, and isn’t.

If we want to develop KPIs or develop performance measures that are meaningful, we have to start with a solid understanding of what meaningful means. Too many people mistake the following things as KPIs or performance measures:

• Positive participant satisfaction surveys
• Implement new recruitment system by June
• Employee Productivity

None of these are true performance measures or KPIs, because none of them are clear, unambiguous or quantitative. The first one is a data collection method (a survey). The second is a milestone (an indicator of project progress, not performance). The third one is just some vague and undefined concept that could be interpreted in different ways and measured in even more different ways.

Meaningful KPIs or performance measures have a specific definition, like this one I created decades ago:

“A performance measure is a quantification that provides objective evidence of the degree to which a performance result is occurring over time.”

Don’t feel bad if your organisation hasn’t adopted the correct understanding of what meaningful performance measures or KPIs are. It’s actually a very common problem, as I’ve learned over nearly 3 decades!

Step 2: Evaluate your existing KPIs and performance measures to decide what to keep and what to cull.

If you don’t currently have a robust and proper approach to develop KPIs and measures, it doesn’t mean all of them will be bad. Don’t throw out the baby with the bathwater. It’s certainly worth a little bit of effort to evaluate your existing KPIs and measures, so you can keep the good ones and cull the bad ones.

Start by setting up an evaluation framework, maybe even just in a spreadsheet (use this template), that contains the criteria for excellence KPIs or measures. These four steps for killing off zombie KPIs will give you a simple process for the evaluation.

Then, as you gather all your existing measures and KPIs into your evaluation spreadsheet, quickly audit each one to be sure it has the complete essential details that every measure needs.

And bear in mind that it’s never good to have too many KPIs. So if you find that everything that moves has a measure, you might want to add an extra iteration of culling to your evaluation process.

Step 3: Make sure your goals are measurable before you develop performance measures.

Have you noticed that most KPI conversation start with someone asking a question like this: “So, what could we measure?” Wrong question. It leads us down a rabbit-hole as we rush to quick-fix KPIs. We end up creating the wrong KPIs for the goals we have. Or we end up with very trivial measures that don’t help us make better decisions.

Meaningful performance measures start with measurable goals. This means that your goal needs to be worded clearly enough and specifically enough that you can imagine how you’ll recognise when it becomes real. So you might first want to check if your current goals are measurable, and also use this recipe to write measurable goals.

Step 4: Don’t use brainstorming to set KPIs! Use this deliberate technique instead…

When Alex Osborn invented the creativity technique called brainstorming, I wonder if he had any idea just how extensively business would apply it. Almost every meeting uses some kind of brainstorming event. But there’s one meeting where we really should leave it off the agenda: the meeting to develop performance measures.

Brainstorming generates very lame KPIs. A KPI brainstorming session, for the goal of staff engagement, produced this list of actions, vague concepts, milestones, indirectly related measures, and trivial counts:

• Turnover
• Sick days
• Retention rate
• Introduction of talent management
• Overtime
• Staff survey
• Engagement index
• Staff satisfaction with their job
• Leadership development
• Performance management

So quit setting KPIs by brainstorming. You need to be more deliberate, to develop performance measures that are the most relevant and feasible evidence of your goals. Use this basic version of the PuMP Measure Design technique, and you’ll develop clear and quantitative measures from relevant and feasible evidence of your goal.

And if you get really stuck, especially if feasible data is really hard to find, take advice from best-selling author, Douglas Hubbard, in his book How To Measure Anything. Fundamental to his point, that anything is measurable, is the Clarification Chain. It basically says that if something is better, then it must be observable or detectable. And if it’s observable or detectable, it can be counted in some way. And if it’s counted, it’s measurable.

Step 5: Build buy-in among the people who you need to support the KPIs.

You know what happens to KPIs that are developed by very small teams or consultants, in private meetings and with no documentation of the rationale for choosing them? They get ignored. No-one will buy in to something they don’t understand, weren’t involved with, and see no relevance in. And don’t think that asking people for their sign-off will work either. KPIs work with buy-in, not sign-off.

You only have meaningful KPIs and measures when they are brought to life and used to improve performance. But they won’t be brought to life if the people who collect the data, analysis the data, report the measures and use the measures don’t buy in. Here are three powerful tactics to make sure you build the buy-in from the start:

• Use a Measures Team that includes the people who know the process or function, the data, the customers and the current problems of the area you want to measure.
• Document your thinking as you design the KPIs, so others can understand and critique it.
• Create an open space for people to see, explore, discuss and give feedback on the draft KPI work.

Bonus: Learn more about how to set KPIs and develop meaningful measures on the Measure Up blog.

There are plenty of articles about developing meaningful KPIs and performance measures, on the Measure Up blog.

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