KPIs, generally known as key performance indicators, are the sophisticated, modern version of "flying by the seat of your pants." They are a set of key numbers which underlie the performance of a business.
KPIs have lots of variants and can come on a wide variety of acronyms including key performance indicators (KPIs), key results indicators (KRIs), results indicators (RIs) and performance indicators (PIs). David Parmenter discussed these in detail in his book, Key Performance Indicators: Developing, Implementing, and Using Winning KPIs.
For this discussion, let me lump them all into one bucket called KPIs. They are real time in the true sense of the word and ideally are generally limited in number.
They have none of the inherent drawbacks of traditional accounting measures, which generally report long after the event.
Tips for Creating Your Business Dashboard
KPIs are a visual tool intended to convey information, trends or variations at a glance. This can generally be achieved through simplistic graphical measures such as line or bar graphs.
Here are some tips:
1. Consider your target audience and their needs
In formulating your KPIs, you need to consider your target audience and their needs. A KPI dashboard for operational managers will consist of measures that are different from those required for the executive board.
A broad understanding of strategic and tactical measures is necessary for management at various levels to gather their information for their relevant decision-making processes.
2. Keep your dashboard simple
If the user needs to spend time interpreting your visual presentation, then you have got it wrong. Remove the fluff. Get rid of fancy great-looking graphics.
3. Identify and include only your key metrics
Not all metrics are KPIs. You need to identify key numbers and drill down to numbers that are at the core of other numbers, that is, independent numbers rather than dependent numbers.
If you are producing more than 20 key numbers, then you may want to rethink and re-calibrate how you determine your KPIs.
Having lots of measures can usually result in large task lists, which generally lead to ineffective management. So keep the measures relevant and important. Many businesses operate successfully within the 10 KPI range.