Metrics and KPIs

Metrics

In general, the idea of business intelligence might be boiled down to computerizing the management. With multiple tools, managers get supported in their everyday tasks what - as a result - facilitate whole managing. Nonetheless, it's not so easy to connect management with computers. To reach that, diverse metrics have been worked-out. And metrics - being a base for whole business intelligence - are the thing which this article is about.

What exactly are metrics?

As for the beginning, a few words of explanation are needed. Metrics - even though they seem obvious and simple - have to be properly-comprehended. Understanding their idea is indispensable for further metrics operating, from designing to using in practice.

The shortest definition explains that a metric is a measure of anything. That's all. Nevertheless, the shorter definition is, the more things it usually includes, and so it is in case of metrics. Whilst managing a company, we get numerous reports every day. What do these reports include? Multiple metrics and what comes out of them. When an employee says that there only are seven nails left, what is it? A metric. In a word, it might be said that metrics are all the numbers that concerns each of company's aspects or areas.

Number of people employed in each department, sales rate, number of lorries owned, and customers' attention. There are plenty of metrics which form depends mostly on department which they're being used at. Thereupon - to choose a few examples only - for manufacturing department one of the most important metrics would be a product return rate. Then, in case of services department, important might be the number of calls from unsatisfied customers. Finally, employee retention rate trend is meaningful for human resources department.

We might say that there are plenty of numbers that describe our company. They all are metrics, but the thing is to present them in a way that enables making conclusions. In point of fact, metrics aren't random numbers and values - they usually are precisely selected so that each of them has its source and point. It's not to take a few values which nothing comes out from. All these metrics have their specific meaning in company's performance. Thereupon, a number of green carets isn't a metric unless we manage a carpet factory. A height of employees isn't a metric, too, unless it influences on the company (in case of builders, height might be important, unlike programmers, for instance).

Later it would be explained how to choose metrics to work efficiently for our company. Up to now we know what the metrics are, and what they are being used for, so there is only one term left. The KPIs - or Key Performance Indicators - which also are common in case of business intelligence. What exactly are they? What is the difference between metrics and Key Performance Indicators, and how to distinguish one from another?

KPIs - the special metrics

The easiest it would be to say that all KPIs are metrics, but not all metrics are KPIs. It's a simple dependency that - in fact - doesn't explain anything. To start with the very beginning, acronym KPI comes from Key Performance Indicator. It's a name of specific metric which is crucial for the company. And here comes the most meaningful difference - KPIs are crucial metrics, and metrics as a whole are all usable numbers. If it's not understandable yet, a few examples should clear up the thing.

The age of employees usually isn't vital for a company. Time passes, employees get older and older, but - in fact - there are plenty of more important things than one retiring worker. Thereupon, concrete ages are nothing more than metrics. But let's see it from another point of view - the average age of employees of each department might be significantly more meaningful, depending on company's profile. Due to that - in some cases - average age might be a Key Performance Indicator.

Then, an example of customers' satisfaction is worth considering. One, concrete customer usually isn't so important, especially in case of larger companies. The group of customers matters, though. Thereupon, customers' satisfaction might be thought to be a Key Performance Indicator, but how to measure it? In fact, the thing isn't difficult, nonetheless we shouldn't expect precise information. We might rate customers' satisfaction basing on the number of calls to services department of our company. It should help us discover whether the customers like our product and whether they are likely to buy it again. On the other hand, considering each call accurately, we should get to know what exactly we should change about our products.

The common feature of most Key Performance Indicator is the fact that most of them are strictly - and inseparably - connected with company's targets. The number of produced carpets is a metric, but this number against target production might be a KPI. What's the difference? If we wanted to produce two thousands carpets, and have already managed to produce five hundreds for instance, all we have to do is to adjust a proper KPI:

500/2000*100%=25%

While 500 is a metric, 25% is a KPI. Here is the difference between KPIs and metrics. In fact, metrics themselves say nothing about general company's condition. On the other hand, KPIs say nothing about company's performance's details. In most cases, Key Performance Indicators are being used for comparing company's achievements to its goals. KPIs do not have to be presented as a ratio (or percentage, though), but it's their most common form. Moreover, it's the form that illustrate the situation in the best - and the fastest - way. Thank to KPIs, managers who know almost nothing about company's core, might quickly gather whether the company is on or off track.

Building a successful metrics structure

Metrics and Key Performance Indicators are already known. It's been also said that usual company have plenty of metrics and only sparse KPIs. But... Are all metrics common for every company? The same with KPIs - are they the same for every company? No, they're not. If they were, they would lose all their sense. In point of fact, every company has to prepare own set of metrics and KPIs. It's not easy, but extremely important, therefore managers should pay enormous attention to it as once made choice will impinge on future every time anyone wants to know something about company's performance.

How to choose proper metrics and KPIs?

There is no simple solutions, nonetheless there are a few steps which every manager should consider to improve the efficiency of its choices.

Selecting the metrics and KPIs never is easy, therefore it's good to have at least one experienced specialist in team. Building a group of people to design the metrics is indispensable and the choice of its participants - extremely important. The thing is to collect people who know everything about the company and its dependencies. Thereupon, there are a few things that have to be followed. These are qualifications, knowledge, and balance. In practice, the team has to include qualified people. At second, the knowledge is indispensable for choosing the metrics - all participants of the group have to know exactly what the company's strategy is and what the goals are. Finally, the balance also is needed not to focus on chosen aspects solely whilst omitting the others, also important in case of metrics designing.

Having a group of people who know general company's goals is not the end of the road, yet. Before the works start, there is a need to clarify what the goals exactly are and clear up all the doubts. There no longer is a place for the unknown. All people not only have to understand the goals and the strategy, but also agree to them. It's also important, after all.

There was a lot said about metrics and Key Performance Indicators, but there was no information about where they're being used at. The answer is dashboards. All the metrics have to support dashboards' work. Moreover, dashboards are the tool which managers use to control the metrics, therefore - before choosing concrete metrics - we should choose the type of dashboard we want to use. There are free common types of dashboards - strategic, operational, and tactical - and each of them is being used for different purposes. Due to that, we need to decide which type suits our company best.

Having chosen the type of dashboard, it must be decided which level of the company the dashboard is supposed to be deployed on. In a word, whether it have to be the top of the company or rather a departmental level. This also matters in case of choosing appropriate metrics as we have to know what people will have an access to dashboards. The demanded end-users have also influence on choosing the type of dashboard, thereupon the second and the third step are tightly connected.

There are ten steps that need to be followed, but listing the metrics is in a half of the way, though. Now, when all the dilemmas about dashboards are solved, we might turn to metrics themselves. As for the beginning, all we have to do is to list metrics and Key Performance Indicators, so that we have a bunch of them suitable for each of strategic objective. On this step, we should think about all the usable measures and try not to forget about anyone. Don't also think that there is too much of metrics - this is just a general list.

Having the list, we should examine the metrics and KPIs. Thereupon, all we have to do is to check whether they are good and meaningful enough to credibly illustrate company's performance. To reach that, we should check whether the KPIs truly are "SMART". It's another acronym - specific, measurable, achievable, result-oriented, and time-bound. We should then check all the metrics this way and - as a result - choose the ones that seem the best. The easiest method for that would be to score metrics in each category and then to find the ones with the highest total.

As we have already rated the metrics, we might then choose the most important and meaningful of them. It's not easy, because mathematical evaluation might sometimes not illustrate the reality in a way it should be. Thereupon, we should once again consider metrics' "weight".

Once we have a bunch of KPIs selected, we might take care of each of them separately. Up to now, the KPIs are only the numbers which are difficult to understand. Thereupon, we should design a method for presenting them. There's no rule, but whole job might be boiled down to visualizing the metrics - this is where all the colors, charts, alerts, and arrows take place. The thing is to present KPIs in a way to let end-users focus on what's really important and begin with the most meaningful parts.

Once the all decisions are made, the thing is to save them. Thereupon, what managers usually do is preparing a document where all KPIs with their circumstances are described. Although it's not a place for analyzing each KPI from the very beginning, the reasons why each KPI had been chosen happen to be useful. In a word, all we have to do is to report what's been stated and why. Then, the document has to be spread - all further dashboard's users and company executives have to know what are the metrics and how to use them properly. Moreover, they need to know how each KPI illustrate an aspect of company's performance.

As soon as KPIs are designed, there is a time to introduce them to the company. When all the needed information are known, specialists might begin preparing a dashboard and software structure that bases on chosen metrics.