Key Performance Indicator (KPI): Meaning, Type and How to Make It

KPI or key performance indicators may already be familiar to company employees. In short key performance indicators is an indicator or assessment to measure the performance or performance of an employee.

However, not just measuring employee performance, there are several things you need to know about what KPIs are.

In fact, this KPI does not only target company employees, but also applies to business actors or business owners, to the company itself.

So what do KPIs mean and the benefits of KPIs for employees? Check out the related explanation key performance indicators  right now!

Definition key performance indicators

As mentioned above, key performance indicators or KPI is an indicator to assess the performance or performance of employees to the company. 

Quoted from Investopedia, key performance indicators (KPI) will refer to a series of measurements used to measure the company's overall long-term performance.

In particular, KPIs will also help determine the company's strategic, financial and operational achievements.

Not only that, KPI here will also act as evaluation and control to ensure employees can do their job optimally so that a company's plans can run smoothly.

Later KPI will work to see the employee performance management system, whether the employee's performance has been running smoothly or can't follow the company culture. So the purpose of implementing KPIs in a company is to take measurements so that the company can achieve its success targets.

Understanding KPIs according to experts

Parmenter (2007)

KPI has a definition as something that is most critical to realizing a successful organization today and in the future.

Banerjee and Buoti (2012)

Key Performance Indicator or KPI is something that is used to measure scale and quantitatively to evaluate the performance of the organization when it wants to realize the goals and targets of the organization that have been determined. KPIs themselves can be applied to create measurable objective policies, analyze trends, and support decision making.

Warrens (2011)

a measurement used to assess how an organization is implementing a predetermined strategic vision. The strategic vision itself can mean goals that refer to how the organization's strategy can be interactively integrated into the overall strategy of the organization.

Iveta (2012)

Key performance indicators can be defined as a measure that has a quantitative and gradual nature for the company. This measure contains various perspectives and is based on concrete data analysis, as well as being the starting point for determining goals and formulating organizational strategies.

KPI Benefits

KPI has so many benefits for companies, business actors, or their employees. What are the benefits or advantages of KPIs? Quoted from various sources, here are 5 benefits of KPIs that you must know:

1. As the direction of the company's business strategy

With the indicators of KPI, it can be used as a guide that must be done by every employee so that his work can achieve the goals of the company. In addition, KPI will later serve as material for evaluating employee performance, of course, it will make it easier for divisions human resources (HR). 

Through KPI, it is also possible to identify the obstacles experienced by employees, which can be handled quickly.

2. Employees can know their performance

Of course, according to the definition of the KPI itself, this indicator also allows employees to easily know their performance while they are working. So that employees can make preparations more quickly when the target has not been achieved or also as an evaluation material if there are obstacles.

Even if an employee's KPI has a good and high value, it can make the quality of the employee good, even employees can use the KPI as a form to increase salaries to the company, because KPI can be a form of employee validity.

3. As a review to achieve the goal

KPI will act as a complete record of the company and all its employees. With the KPI, performance mapping will be much measurable and can be a reference for companies to take the right steps to develop.

4. Make it easier for HR in making decisions

As mentioned, if KPI can facilitate the work of the HR team, it is in the decision-making stage because with the KPI, data or facts related to employees will be neatly organized.

5. Help to direct employees

Through indicators that have been adjusted to the company, this KPI analysis will also be a reference for employees or companies to see performance priorities that must be developed so that the company's business goals can also be immediately achieved in accordance with their expectations.

KPI types and examples

Key performance indicators or KPIs are divided into two types, namely KPIs and KPIs financial and KPIs notfinancial.

KPI Financial

KPI financial are KPIs whose indicators are related to finance. Usually the type of KPI financial it has example key performance indicators company because it is related to company finances.

Gross Profit KPI

KPI profit dirty or big profit is a KPI that regulates the amount of money left over from income then reduced by HPP (Cost of Goods Sold).

Net Profit KPI

net profit or KPI net profit will measure the amount of money left over from income after deducting COGS and interest and taxes.

Gross Profit Margin KPI

KPI gross profit margin or gross profit margin different from gross profit KPI because this type of KPI will measure the percentage value obtained by dividing gross profit and income.

Net Margin KPI

This KPI will measure the percentage value obtained by dividing net income by income.

KPI Current Ratio

KPI Current ratio or current ratio is a KPI that will measure the financial performance of the liquidity balance by dividing current assets by current liabilities.

KPI Non-Financial

As the name implies KPI non-financial are KPIs that do not have anything to do with company finances. KPI non-financial also has sample KPIs for employees or individuals in pursuit of company goals. KPI example non-financial:

1. Market share
2. Customer satisfaction matrix
3. Labor turnover
4. The ratio of repeat customers to new customers.

How to make key performance indicators

To create KPIs or key performance indicators The following five steps are quoted from the page Clipfolio.

1. In terms of business objectives, KPIs are not a static form. So you have to create KPIs that can develop according to your company's business goals.
2. Analyze your current performance. Have you set a target to be achieved? If so, analyzing performance is very important to understand your circle of success and how to improve it.
3.  Set short-term and long-term KPI targets, long-term can be set within three months or annually. This way you can keep reassessing and changing direction when you're about to work with a sizable target.
4. Review targets with the help of a team, as working with a team can make the job much easier.
5. Review and adjust indicators in detail, always check regularly the performance and relevance of your KPIs.

So this KPI will be useful for the company as well as all levels of its employees. As is key performance indicators It also makes it easier for the company to achieve its goals. KPIs must be made objectively and in accordance with the performance given by employees to the company.