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People involved in the business world like to throw around buzz words, and one of the most common we hear is KPI, or Key Performance Indicator. The problem is, while KPIs are very useful in business, they’re often times very misunderstood.

What are you measuring?

Perhaps one of the most important aspects of a KPI is the activity or item you’re measuring. Since every KPI needs an objective, keep in mind that adding a KPI measuring the wrong thing can have adverse affects. For example, if we set a KPI measuring number of daily meeting minute emails sent, this would be useless. The number of daily meetings will not change, so our KPI will not change. What’s worse, your team may potentially decide to send more than a single email containing notes from the meeting, which would have an adverse effect on productivity.

Bottom line: Be careful that your KPI doesn’t create unnecessary overhead.

How cluttered is your Dashboard?

When choosing KPIs, it’s important not to go overboard. We see this in many different business models among our clients. In order to create elaborate Dashboards, organizations or teams sometimes go overboard in picking KPIs to display. Having six different KPIs for essentially the same goal can be counter-productive. Let’s say we add the following to our Dashboard: gross margin per square foot, sales per square foot, revenue per square foot, gross margin return on investment per square foot, you get the idea. Pick the KPI that matters most, and move on to your next metric.

Is your KPI actionable?

Remember that KPIs and metrics are not the same beasts. A KPI is a measurement you analyze in order to meet a goal. In other words, it’s something we want to improve. Otherwise, if it’s just a number, it’s called a metric. Let’s say you want to know how many sheets of paper are used in a day at your retail business. This by itself is a metric. Now, let’s say you decide you want to analyze the amount of paper that’s used per retail location, and compare it to the usage from last year. Then, you want to create a curve to achieve the goal of being more efficient. Now, you have a reason for a KPI.

What’s next?

Take action! We can’t stress this enough. Having a fancy KPI dashboard is useless if you’re not actively utilizing it to affect change. If your dashboard is too complicated, then go back to the basics. Hold meetings centered around each KPI to make sure your team understands them.