KPI. What they are and how they work

What are KPIs for? How does the KPI system work in business? Why do owners, employees and the company as a whole need it? BinomCraft Ukraine specialists analyse how this system works and what the pitfalls are.

We don't manage what we don't measure. This is a well-known expression that best illustrates the essence of economic activity. KPI is about measuring the results of an activity, evaluating the result not in terms of 'like' or 'dislike', but in concrete figures.

KPI (Key Performance Indicators) are the most important performance indicators. The meaning is in the name itself:

they are indicators, i.e. something that can be measured by numbers;
they are used to measure the efficiency of employees, the result of their activities;
they are key, i.e. the achievement of the company's objectives depends on them.

The benefits of KPIs

KPIs are key performance indicators that reflect the quality of each employee's work. An employee's KPIs show their strengths and weaknesses, which in the future will help in the fair distribution of financial rewards or other incentives. This system is also useful for employees themselves. For example, when they need to analyse their own results and compare them with previous indicators.

By using KPIs, the company is able to manage the process and make changes, as well as set goals for employees and motivate them to achieve them.

The main advantages of using KPIs, according to BinomCraft copany's specialists, include

Employee motivation;
Fairness, transparency and comparability of results (it becomes clear to management and employees who of the company's employees works how much and earns how much);
Adjustment of the employee's work according to his/her performance;
Employees' participation in achieving the organisation's objectives;
Control of the quality of work performance.

Thus, the advantage of the KPI system is the active motivation of personnel on the basis of calculated comparable indicators.

The salary of an employee, calculated on the basis of KPI indicators, depends on his real contribution to the overall result of the company. If you achieve more significant results, you get more. By moving to KPIs, the company starts to think in terms of results rather than processes. People focus on the tasks that maximise the development of the business and move it towards strategic goals. If you need to create a KPI system, don't hesitate to contact BinomCraft trading. We will offer a number of effective solutions based on our own experience.

How the KPI system works
Within an employee's functional responsibilities, a maximum of three KPIs that have a significant impact on the company's results are selected, the salary/bonus ratio is determined, and a bonus plan is established. Often, after implementing KPIs, it turns out that the employee who everyone thought was the strongest is so bad that it is no longer a question of bonuses but of dismissal.

It is important to realise that KPIs are not developed once and for all. They may change based on the company's goals and current objectives. Always look at KPIs holistically. Model what else they will affect. And remember, you cannot copy the KPIs of your colleagues or competitors. Define them based on the business objective. KPIs are a tool for achieving the business goal, and the main benefit of implementing the system is to speed up this process. Not having a business goal is the biggest mistake when implementing KPIs. We will talk about other mistakes when implementing KPIs in one of the next Binom Kraft blog posts.