Definition of KPI ( Key Performance Indicators ) – Key Performance Indicators or abbreviated as KPI is one type of performance measurement used to measure how well a company / organization, project, unit, department or individual achieve the goals and strategic objectives the company has established.
The Company management generally uses Key Performance Indicators (KPI) to track and analyze factors that are considered important for the success of their organization.
With Key Performance Indicators or KPIs, company management or stakeholders can understand whether the concerned organization or work unit is on track towards the stated goals.
Key Performance Indicators are often referred to as Key Success Indicators or abbreviated as KSI.
Key Performance Indicators is a measurement that is quantitative in nature and reflects the factors that are key to the success of an organization.
In general, the indicators that are determined and measured in the KPI are the agreement of all the parties concerned. The measured indicators and the KPI’s target for each organization differ, depending on the nature and strategy of the organization.
For example, one of the main performance indicators for public companies (public companies) is the share price and the amount of dividends that will be distributed to shareholders, while the KPI for startup companies is the increase in the number of customers or the growth in product sales.
The essence of KPI is to set targets and measurable ways to assess the company’s progress against these determined targets.
Definition of KPI ( Key Performance Indicator ) according to experts
The following below is a definition list of Key Performance Indicators according to experts.
- The definition of KPI ( Key Performance Indicator ) according to Warren (2011), key performance indicator is a measurement that assesses how an organization executes its strategic vision. The strategic vision in question refers to how the organizational strategy is interactively integrated into the overall organizational strategy.
- The definition of KPI ( Key Performance Indicator ) according to Iveta (2012), key performance indicators are quantitative and gradual measures for companies and have various perspectives and are based on concrete data, and serve as a starting point for setting goals and formulating organizational strategies.
- The definition of KPI ( Key Performance Indicator ) according to Banerjee and Buoti (2012), a key performance indicator is a scale and quantitative measure used to evaluate organizational performance in order to achieve organizational targets. KPIs are also used to define measurable objectives, see trends, and support decision making.
- The definition of KPI ( Key Performance Indicator ) according to Parmenter (2007) defines Key Performance Indicators as the most critical for organizational success in present and future conditions.
Types of Key Performance Indicators (Main Performance Indicators)
Basically, the Key Performance Indicator or KPI can be divided into two types, namely Financial KPI and Non-Financial KPI.
1. Financial Key Performance Indicators
Financial KPIs are the main performance indicators related to finance. Examples of these Financial KPIs include the following:
- KPI Gross Profit, namely KPI that measures the amount of money leftover from income after deducting the Cost of Goods Sold (HPP).
- Net Profit KPI, namely KPI that measures the amount of money left over from income after deducting the Cost of Goods Sold and other business expenses such as interest and taxes.
- KPI Gross Profit Margin, namely KPI that measures the percentage value obtained by dividing Gross Profit by Income.
- Net Profit Margin KPI, namely KPI that measures the percentage value obtained by dividing net profit based on income.
- Current Ratio KPI, namely KPI that measures financial performance in terms of liquidity by distributing current assets with current liabilities.
Each of these Key Performance Indicators effectively answers specific questions. As in the example of the Current Ratio KPI, this KPI effectively answers the question “how quickly can our business convert current assets into cash to pay its short-term liabilities”.
This indicator estimates how well a business will survive if it experiences a sudden decline. The second example in the KPI Gross Profit Margin, this KPI can answer questions such as “How profitable is a business” or “How efficient is the production process”.
2. Non-Financial Key Performance Indicator
Non-Financial KPIs are KPIs that do not directly affect the finances of a company. Some examples of these Non-Financial KPIs include:
- Manpower Turnover.
- Customer Satisfaction metrics.
- Repeat Customer to New Customer Ratio.
- Market Share.
Develop appropriate Key Performance Indicators
Developing Key Performance Indicators requires company time and resources. The main performance indicators that are measured are indicators that suit the company’s needs by considering the company’s short-term strategy and goals.
For example, if the sales of our company are increasing satisfactorily but the company’s profitability is not sufficient to provide funds for business growth, then the almost certain KPIs for our company is the KPI for Net Profit Margin and Gross Profit Margin.
On the one hand, if the profitability is in line with expectations, but the growth is not as fast as expected, then we can consider several non-financial KPIs such as the KPI for Labor Turnover, the KPI for Customer Satisfaction or the Ratio of Repeat Customers to New Customers.
Examples of KPI Indicators in Organizations
As previously mentioned, each organization or company has its own indicators to assess the success of its organization or company.
The following are some examples of KPI for organizations in various industry sectors.
- For schools, the measured performance indicator is the pass rate of students.
- For property companies, the measured performance indicator is the level of property sales.
- For manufacturing companies, examples of measured performance indicators such as the amount of output produced in a certain month, the accuracy of delivery of finished goods to customers.
- For Application Start-up Companies, the measured performance indicators are the number of users using the application and the number of application downloads.