What are Key Metrics
Key metrics – sometimes referred to as Key Performance Indicators (KPIs) – are quantitative or qualitative measures commonly used for assessing, comparing, and tracking performance or productivity in an organization.
Why is it important?
Key metrics or KPIs are important to employment social enterprises because they:
- Create a way to track core operational functions of an organization: Metrics can be tied to any number of functions in an organization, including employee success program, finance, sales, human resources, and operations. Metrics are indicators that tell the story of an organization across these many functions and can alert managers and leaders to issues that require intervention before they become critical.
- Support informed decision-making: Metrics are a useful tool to facilitate and focus executive- and management-level decision-making because they illustrate past trends and current status of an organization. Tactical and strategic decisions can therefore be informed with data that show where priorities may lie and how decisions could impact future performance. For example, metrics that show sales margins over time can help an employment social enterprise to make decisions impacting costs, sales price, marketing, or product / service offerings.
- Are useful inputs to stakeholder and funder reporting: Often, employment social enterprises must regularly report to funders and other stakeholders about the performance of the organization. An organization that has metrics in place and utilizes good data management practices to regularly populate its metrics can quickly and reliably generate reports required by its stakeholders and funders.
- Getting started with the basics
- Identify 1 or 2 key metrics or KPIs to measure: If you are getting started with establishing KPIs, consider simply identifying 1 or 2 KPIs that will be most helpful to your organization to measure, monitor, and include in leadership discussions. For employment social enterprises, one KPI that is often critical to the organization is revenue from product or service sales. As you define this metric and future metrics, use the SMART approach (see below).
- Use the SMART approach to continue identifying and defining your metrics: Metrics and KPIs should be SMART in order to be useful for an organization’s performance and growth. As you identify and define your organization’s KPIs, reference the SMART framework:
- Specific: Start with a specific objective that can be isolated. Make sure that the KPI is specific enough to be aligned with the most important objective(s) you have for the organization. For example, if your organization’s objective is to improve sales, then a KPI such as “5% month-over-month increase in sales as measured in dollars” is more specific than simply “improve sales.”
- Measurable: Consider whether the metric you are defining is measurable using the systems you have in place in the organization. In other words, can you access, aggregate, and report on the data that populates the KPI? If the KPI isn’t measurable, you may need to redefine the KPI or revisit processes, software, or data management practices in order to make the KPI measurable.
- Attainable: Make sure the KPI is something that can be readily attained. While in some instances it may be appropriate to define stretch goals or metrics, be sure to first define KPIs that you’re confident that the organization can achieve. This is to support the intended effect of KPIs – reaching a target can create momentum and motivate a team to improve further, while missing a target can sometimes result in frustration and demotivation, thus derailing future improvement efforts.
- Relevant: Ask if the metrics are relevant to the organization’s priorities. What actions or behaviors will any given metric encourage? Is that a priority for the organization? If you are considering implementing a number of different metrics, evaluating the relevance of each may help you to identify the most important metrics to implement in your organization.
- Time-bound: KPIs are, by necessity, time-bound. This is what makes KPIs useful for an organization – there is an expectation that metrics will indicate progress towards a goal over a certain time period and give organizational leadership the insight needed to adjust course if needed. Make sure your KPIs have timeframes and deadlines associated with measuring the metric. Extending the example under the “Specific” bullet point above, a time-bound metric may be “5% month-over-month increase in sales as measured in dollars. Monthly sales data will be collected and analyzed on the 5th of every month for the previous month.”
- Assign ownership and establish a rhythm for reporting on and reviewing your metrics: Key metrics or KPIs need ownership and need a regular, planned rhythm for reporting and review. For each metric that your organization has identified, be sure to have an individual assigned to ensure that the data for that metric is collected, analyzed, and reported on in a manner that meets the expectations decided on via the SMART framework. Weekly or monthly leadership meetings may be a good time to review your metrics. During the review and discussion, focus the conversation on three items:
- What is the metric telling us? Simply put, what is the information that the metric is indicating? Make sure that everyone who is reviewing the metric understands and is aligned on the core conclusion (e.g., “This metric is telling us that we missed our month-over-month sales target last month by $10,000”).
- What are the underlying reasons or drivers for what we are seeing? In some cases, the KPI owner can offer reasons for the metric’s results. In other cases, a brief discussion can reveal possible reasons for the performance. It’s important to avoid a “blame game” if metrics reveal under-performance against the target. Instead, open a dialogue that encourages team collaboration and support (e.g., “Does the sales team need anything from the rest of us in order to hit the sales target next month?)
- What are the next steps? One of the most important things to do during a review and discussion of metrics is to make sure that next steps are clear. This may include adjusting the metric due to under- or over-performance. If there is under-performance, next steps should always include actions for the team to take in order to address issues that resulted in the target not being achieved (e.g., “Sales team will review the pipeline and prioritize action on deals that are nearest to closure.”) If there is over-performance, next steps should always include actions to systematize any lessons that led to the achievement.
- Keeping momentum with high-performance practices
- Consider how metrics impact or relate to one another: As your organization establishes, measures, and monitors more metrics, you’ll have an opportunity to see how performance in one metric impacts or relates to another (e.g., earned revenue, net margins, and customer satisfaction KPIs may have improved as team member satisfaction and job shift on-time rates have also increased). This further helps how the organization’s leadership and management prioritize actions that can have an impact on multiple KPIs and, therefore, on overall organizational health and improvement.
- Use metrics as a part of strategy: Metrics and KPIs that have been measured and monitored over a long period of time provide useful input to strategy discussions, as it can help an organization to determine where to invest in order to grow, how respond to competitive pressures, or what preparations make sense for anticipated changes in the ecosystem or market landscape.
- Utilize a dashboard to assist with management of metrics: Basic dashboards can be built using tools such as Excel, or any number of off-the-shelf dashboard software solutions may be worth considering to assist with collecting, aggregating, and visualizing your organization’s KPIs. It’s important, however, to carefully evaluate the cost, benefits, and any other trade-offs when considering acquiring and integrating new software into your organization’s operations.
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- 11 KPI Software to Create Dashboards & Monitor Metrics
About Emerging Market Enterprises
Emerging Market Enterprises (EME) is an advisory firm based in Washington, DC, that works with startups, scaleups, and intermediaries in the impact ecosystem. EME provides a variety of services to its clients and partners to include market strategy, operations improvement, and leadership coaching.