How to Select Key Performance Indicators for Your Business

How Many KPIs?

Bearing in mind what we have already talked about, concerning the definition of KPIs, for any business there should really be no more than 20 KPIs selected to manage a business by. If there are more than that then there becomes problems in managing and assimilating all these pieces of information.

Further to this, if a business is wanting to manage itself taking into account all aspects of business operation; that is with the "balanced scorecard" approach, then there should be no more than five KPIs in any one "KPI group". Typical KPI groups are: operations, finance, human resources, safety, sales, production, etc. These KPI groups obviously will be different for each business. This balanced approach is not necessairily always the best approach to take - it is dependent very much on the business, the management, the management style and the industry.

If there are too many KPIs in total then it becomes difficult to manage the business. If there are too many KPIs in one KPI group then the business becomes focused on just one business aspect, perhaps letting other areas suffer.

KPI Discovery

Some management teams will have very good ideas on the critical measurements that drive their business, others will not, but most management teams will need some form of guided sessions to discover or select a set of KPIs that are most relevant to their business. These "KPI Discovery" sessions can be half day sessions or longer as required and go through the process of brainstorming, grouping together, selecting and finally defining KPIs.

The process of actually defining the KPIs goes into some detail including the KPI definition, the target, the source of data, the frequency of measurement, the frequency of reporting and the quality of data recorded. Some KPIs are very important to the success of a business but are very difficult of time consuming to collect data on. Decisions are made as to which KPIs are to be used - based on their importance, their cost of measurement and their accuracy of measurement.

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