Performance indicators: what are they and why use them?

Performance indicators: what are they and why use them?

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Performance indicators or KPIs (Key Performance Indicator) are metric management tools that evaluate the results of a specific business activity, aiming to identify problems and guide solutions based on strategic planning.

The competitive reality of the business world requires increasingly efficient management mechanisms that offer smart features to enhance the productivity and reduce costs. In this scenario, analyzing business performance is essential for management to be effective. Performance indicators they are strategic resources to optimize this direction.

With such data, managers have a more comprehensive view of the company's internal processes and can make decisions with more precision and assertiveness.

In this post we will explain in detail what these performance indicators are, and show their importance for the success of a business. Check out!

What are performance indicators?

Performance indicators are tools metrics which present quantitative and qualitative data on the performance of a company, whether through projects, sectors or the organization as a whole.

They are able to measure the fulfillment of the goals stipulated in the planning, which is why they are so important for making new decisions.

With the performance information exposed, managers are able to direct actions that generate more effective income. And so, promote a strategic alignment, which puts all hierarchical levels of the company in the same direction.

There are several types of performance indicators, such as quality, sales, financial, satisfaction, among many others, which we will explore later.

How do performance indicators work?

To maximize results, it is not enough to know what the indicators are. It is necessary to understand their importance for the business, align them with organizational strategies and monitor them. Otherwise, they will only be numbers.

First of all, the moment the company is going through must be analyzed with caution. Thus, the most appropriate indicators to measure the performance of each objective can be defined.

There is no ideal number of indicators, each case is different. The size of the organization, field of activity and, mainly, the goals influence this choice.

An initial tip is to define 5 to 10 indicators that are related to the company's capacity. Thus, the workflow can be observed and the advances or setbacks analyzed.

Once the applications and the role of performance indicators are understood to enhance the business, new metrics can be implemented to transform the performance of the entire company.

What are the types of indicators?

There are several types of performance indicators. Check out the most common ones:

1. Productivity Indicator

Here, the productivity of each employee can be analyzed. Hours worked, for example, can be a point of reference.

2. Billing Indicator

This indicator reports how much the company generated in sales. But it is linked to gross revenue, so it does not consider the reduction of costs. It is a good indicator for measuring the most promising and least promising products.

3. Sales x Opportunity Indicator

Here, the company studies the existing bottlenecks in its sales funnel. And so, the reasons that lead customers to make or withdraw from the proposal are analyzed.

4. Marketing Indicator

This indicator helps the company to understand its position in relation to the market. Thus, your approach to disclosure can be assessed.

5. Quality indicator

Customer satisfaction is the focus of this indicator. The points that the company sins in customer service and those that impresses are studied. Thus, customer retention is optimized.

6. Human Resources Indicator

Here, employee satisfaction is assessed. The level of turnover, absenteeism, training, among others, are considered.

7. Turnover indicator

O turnover rate of employees is measured with this indicator. For this reason, problems related to working conditions and company culture can be identified. Therefore, the reason why employees give up working at the company are addressed.

8. Capacity indicator

This indicator measures the ability to response to a process. How much the company delivers in a given time interval is estimated using this indicator.

9. Profitability Indicator

Here, the percentage relationship between your company's profit and total sales is measured.

10. Profitability Indicator

This indicator addresses the percentage relationship between profit and investment made in the company.

11. Installed Capacity Indicator

This indicator is linked to company's production demand, considering its structure. Understanding its installed capacity, the manager can optimize the company's infrastructure.

How to choose the best performance indicators?

To choose the most suitable ones, the company must divide its indicators into two categories:

Strategy Indicators

You strategic profile indicators measure medium and long term objectives. Roughly speaking, these indicators involve all factors that directly impact the company's ability to remain profitable.

Process Indicators

The ones from Law Suit, assess how an internal routine is being performed. Roughly speaking, these indicators measure the quality of internal processes and infrastructure performance.

By correctly categorizing organizational goals, the most efficient indicators will be easily defined.

In addition, it is important to consider the business profile. The business area of ​​the companies influences the choice of performance indicators.

A logistics company, for example, needs metrics that assess its ability to deliver quality products. Therefore, the volume of deliveries, the fulfillment of deadlines, the time spent with each service, are indicators to be considered.

What are the benefits of indicators for companies?

The efficient management of processes and the alignment of objectives are the main gains that a company has when implementing performance indicators.

With a real picture of the company's moment, problems and errors can be identified, facilitating the search for solutions. Managers gain a direction to implement more efficient corrective actions. Organizational capacity is expanded.

In addition, as internal processes are carefully evaluated, it is possible to recognize unmotivated employees or who have difficulties to perform their tasks. Thus, the manager is able to develop a personalized training plan for your work team.

You performance indicators allow you to track and track the progress of any project the company wants. Your most relevant information is made available to optimize performance and profitability.

With a preventive plan like this implemented with quality, in line with the goals strategic planning, the company can achieve the best results in the medium and long term, gaining a competitive advantage.

Make a careful study of the moment of your company, define your performance indicators and put your business ahead of the competition.

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