Key Performance Indicators (KPIs) are all around us and are most commonly a quantitative value (i.e. a number) and they come with a "unit of measure" such as each, dollars, miles per hour, or minutes.
What makes a number important or "Key" is the fact that the number conveys information within a context that is relevant for observing and/or managing performance.
Well thought out KPIs can give you the information you need to know with just a glance -- very similar to an automobile dashboard:
- Speedometer displays your velocity in miles per hour (MPH)
- Tachometer displays your crankshaft rotation speed in rotations per minute (RPM)
- Engine Temperature in degrees
- Battery Voltage
While a KPI is expressed as a quantitative value, we also need to know what values we are targeting--often called "Thresholds."
Thresholds are the upper and lower limits of a KPI that frame "good" and "bad" scores.
Depending on the context, sometimes we want a KPI score to be as high as possible. For example, if you are tracking the value for a basketball team's average scoring, the higher the better. However, no one brags about their high score in golf!
Defining appropriate thresholds takes some thought and consideration. When targeting the upper and lower thresholds for a specific KPI we want to consider the constraints we are faced with.
Let's look at a common KPI employed for a service business, Response Time. When measuring Response Time, we want to see the time as low as possible.