Key Performance Index (KPI), Measuring Performance in Business

Measurement of a performance in bisnis It is important to know the current position of the business and determine future strategies. You can perform this performance measurement by using key performance index (KPIs).

What is that key performance index? What are the characteristics that indicate that a measuring instrument is a key performance index? Check out the explanation below.

What is that Key Performance Index?

Key performance index or key performance indicators is a matrix or measuring tool to measure the performance of a business or company. Results of measurements using KPIcan help describe the effectiveness of the business in achieving goals.

A measuring instrument can be said as key performance index if it has the following characteristics:

• Have a target what to achieve.
• Often used for (regular measures)
• Known by management.
• Everyone in the company or organization has understood.
• Oriented to outcome.
• Has a threshold to distinguish between the target value and the actual value.
• Has a significant and positive effect.

Determine KPI cannot be done haphazardly, but requires careful planning. One of the things that companies need to prepare before determining KPIs is to set goals or missions to be achieved, because this is the basis for determining KPIs.

Then, in order for KPIs to function optimally, KPIs must be 'SMART' scientific, measurable, attainable, reliable, and have time bound.

Types Key Performance Index

KPI divided into two types, namely Financial KPIs and non-financial KPIs. The following is an example of each type of KPI.

Financial KPI

This type of KPI is used to measure performance related to finance. Examples include KPIs used to measure gross profit (grossprofit), net profit (net profit), gross profit margin (gross profit margin), net profit margin (net profit margin), and the current ratio (current ratio).

Non-Financial KPIs

In contrast, non-financial KPIs are KPIs that do not directly affect finances, for example, among others:

• Customer satisfaction matrix
• The ratio of repeat customers to new customers
• Market share
• Labor turnover

This is information about key performance index as a performance measurement tool in a business or organization. If you plan to set KPIs to help achieve your business goals, make sure they meet the SMART rules described above.