KPI

What it means

A KPI measures performance in an area that matters to the company’s goal. The word "key" is the point: hundreds of metrics can be computed, but a KPI is one that is actually acted on when it moves.

A good one has four properties: an unambiguous definition, available data, a named owner, and a target with a date. Without the last two it is merely a statistic.

Indicators split into lagging ones, which show the result, such as revenue and profit, and leading ones, which predict it: the number of quotes, capacity utilisation, open deals in the pipeline. A company steered only by lagging indicators learns of a problem once it is already in the numbers.

How it works in practice

Five to seven is enough for a small company: revenue, margin, cash, overdue receivables, people’s utilisation and client satisfaction. They go on a monthly dashboard; the detail stays in reporting.

A metric is never read alone: it is compared against the prior period, against plan, or against the sector via benchmarking. The comparison is what turns a number into information.

Financial KPIs are reliable only when the month’s bookkeeping is done on time and in full. With clients who follow them monthly we therefore agree a deadline for documents and a fixed day on which they get the numbers; the same data then feeds the forecast.

What to watch out for

A metric tied to a bonus gets optimised even against sense - deals closed rise, quality falls. So KPIs are set in pairs where the second protects quality, and OKRs are what separate them from longer-term objectives.

The second common mistake is inconsistent definitions: sales counts revenue when the contract is signed, accounting when the invoice is issued, and the meeting compares two different numbers with the same name. The definition should be written down and the data source single, such as a data warehouse, or the time goes on arguing about numbers.