“When you can measure that of which you're talking about and express it in numbers, it can be said that you know something about it; but when you can't measure it, when you can’t express it in numbers, your knowledge is very deficient and little satisfying “.
William Thomson (Lord Kevin) (1824 – 1907)
KEY PERFORMANCE INDICATORS (KPI´s)
In an article we published earlier, we talked about OKRs (Objectives and Key Results), so now we present information about KPIs (Key Performance Indicators) and the basic differences between them.
OKRs are often compared to KPIs, which sometimes creates confusion, since differentiating between these two acronyms related to the measurement of objectives is not easy, since the first is a methodology that uses metrics to achieve those objectives, while the second is an indicator that evaluates the performance of the entire organization based on the objectives set.
Both concepts are necessary tools that accompany and help measure the actions that will help achieve a successful organizational goal. They complement each other to the extent that the OKRs constitute the strategic framework on which the KPI indicators are based. Therefore, even if you compare them and try to choose one over the other, the truth is that both collaborate with the achievement of the objectives, in one way or another.
Let's consider that before going into the explanation of any indicator, we must consider the importance of project management, whatever its nature.
Normally a project arises from a need and always has a context where it starts: regulatory requirements (legal or social), creating and/or improving products, processes, or services, satisfying the needs of the interested parties, or implementing or changing business strategies.
Effective project management will help the organization meet business objectives, deliver the right products at the right time, meet stakeholder expectations, and deliver value to the business in a sustainable manner. All this without forgetting the influences that the environment can condition the way of carrying out the activities, as well as the development approach and the ways of working (WoW) that apply to carry out the work. Here would come what is contained in the Talent Triangle indicated by the PMI (Project Management Institute), which would be the subject of another article.
As we mentioned before, it is important to know the development approach of the project, its life cycle, where it is necessary to maintain a balance between its scope, time, and cost. We must then consider, depending on the nature of the project, the approach that is given, be it predictive, iterative, incremental, or agile. The latter conditions the way in which we are going to plan, since it is at this stage that the requirements must be collected, and the scope defined.
For this we can start from Value Management in Scope (*). To better understand this, we can do it graphically, in which we see the full dimension of the concept:
(*) Paris Parra (SYCCA)
To measure the behavior or if the objectives that were raised with the interested parties at the beginning of the project were achieved, the Performance Indicators are defined.
CONCEPT
A KPI (Key Performance Indicator) is a measurable value that reflects the achievement of a strategic objective to which it is associated, or the fulfillment of the success criteria established during project planning. They are used to evaluate the performance of an organization, individual, program, action, project, etc., over time. Indicators should generally be linked to strategic objectives, indicate where to focus resources, and be benchmarked.
Therefore, the KPIs provide detailed and significant information on performance, which allows stakeholders or collaborators to know if they are on the right path, if the objectives and planned goals are being achieved. In this way it will be possible to visualize the reality of the performance and management of the organization.
Since the current environment is very changeable, it is necessary to periodically check the results we achieve.Then, a KPI allows:
· Measure results and contrast with the planned objective.
· Observe and understand reality to apply corrective measures.
· They provide information that allows decision-making.
· They are used to compare situations, which helps to visualize options.
· They are important to define the correct strategies, based on the analysis of the information.
· They allow assessing trends in relation to goals.
KPI CHARACTERISTICS
KPIs are graphically grouped into scorecards. In this way, process leaders can quickly make the necessary decisions.
The main characteristics of KPIs can be summarized as follows:
· They are measurable: being metric, their main characteristic is that they are measured in units.
· They are quantifiable: if we can measure them, we can also quantify them. For example, just as units are measured, they can be represented in percent.
· They are specific: they must focus on measuring a single aspect and for this we must be specific and concrete.
· They are temporary: they must be measurable over time.
· They are relevant: the aspects that are relevant and important to our organization must be considered.
This is what encompasses the concept that they must be SMART (measurable, achievable, relevant, specific and with a time limit).
MAIN DIFFERENCES BETWEEN KPI AND OKR
KPIs represent a measurable value, while an OKR behaves like a goal or key result. More specifically, we can establish 4 significant differences between both tools:
1. KPIs are metrics to measure performance. OKRs are multiple key results, aimed at measuring certain objectives.
2. KPIs are based on past results and current projects. OKRs are based on the company's mission and aspirations.
3. KPIs evaluate processes, projects and objectives depending on the needs of the organization. OKRs perform the assessment on a weekly, monthly, quarterly, or annual basis.
4. Basically, the KPIs are dedicated to control and measure a process.
5. OKRs prefer to motivate the team, for this reason, they are key results every certain period and KPIs are real-time indicators that show results instantly.
Although key results and key performance indicators sound similar, just keep in mind that OKR is a result and a KPI is a measure. Now, let's define the difference between indicators and measurement: a metric is an absolute number, on the other hand, the indicator is information of a strategic nature that allows evaluating the performance of an organization. For this reason, OKR and KPI complement each other.
In summary, the differences between OKR and KPI, at times, seem so diffuse that they could easily be confused because they are monitoring methodologies to obtain relevant numbers. However, OKRs are aimed at obtaining key results to achieve objectives, while KPIs measure the processes and tasks of those key results. Implementing OKR will help you to have a specific north in your organizational goals and not deviate from the path. Identifying KPIs will allow you to measure your performance and assess the real possibilities of achieving those objectives.
To give a more practical view of the KPIs and OKRs, an example of them is shown below, always considering the way companies work and/or how to manage projects for early decision making and giving greater value to the stakeholders.
KPI example:
Achievement with Production Schedule (PSA)
This production KPI reflects how well production is planned and how effectively production workers meet their targets. In Production, planning plays an essential role. The more complex the production processes, the more important is the ability to execute the plan. But it also becomes more difficult. Creating an accurate production schedule to produce a certain amount of output according to plan is very important if the manufacturer is to meet customer expectations and corporate strategy. This production KPI can be calculated like this:
Production Schedule Achievement (PSA) = (Actual Production / Planned Production) x 100
OKR example:
Objective: Reduce production costs
Key results:
· Identify and eliminate unnecessary production processes to reduce costs by 15% in the first quarter.
· Implement supply chain automation technology to reduce labor costs by 10% in the next year.
In summary, OKRs focus on the key objectives that the company wants to achieve, while KPIs measure progress towards those goals. goals. By using both together, companies can set clear and measurable goals and monitor their progress on a regular basis. It is also important to consider that the indicators must also be considered once the project has concluded, since it is a procedure that indicates whether the improvements that have been implemented are efficient over time.
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Sources:
1. SYCCA : KPI´s Course
2. PMI: (PMBoK V.7)
3. Marco Calle – Blog
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