This is Part 2 of a two-part series on Key Performance Indicators (KPIs). Part 1 discusses how to create effective KPIs, while Part 2 discusses how to use them and some traps to watch out for.
Once you have established key performance indicators (KPIs) that are objectively/easily measurable, align with the company’s overall goals, and are something the employee/department has some influence over, your job isn’t quite over. After all, what good is data if you’re not going to use it?! In order to determine how to actually use KPIs that you have established, consider the following questions:
What is “good” or “bad” for this KPI?
Said another way, do you have a benchmark/baseline/target so you know whether the measured outcome is above or below your expectations? Imagine if you spent time establishing net revenue per case as a KPI for your billing department. You spent time defining each type of case performed, estimated revenue by payer, and developed an easy way to track the results. After the first month, your billing team showed revenue results of $350 per case? Is that good or bad?
For some KPIs, there may be industry data available to you against which you can measure. For others, you may have to go back in time to see what the KPI was historically. For new KPIs, it may require you to start tracking the KPI but hold off on implementing it as a performance tool until a baseline is established.
How many KPIs should each employee/department have?
If you can distill performance into one all-encompassing KPI, that’s amazing. In most scenarios, you may need to establish 2-3 KPIs that help provide an overall picture of an employee’s/department’s performance. In accountable care organizations (ACOs), for example, they don’t use only cost savings as a KPI, they also incorporate quality data such as hospital readmission or mortality rates. Or while staff productivity may be an important metric and align with the company goals of increasing profitability, adding a second KPI related to customer/patient satisfaction ensures that increases in short-term productivity won’t have a negative impact on your longer-term customer loyalty.
Is this an individual KPI or a group/company KPI?
If you have multiple salespeople with different territories, it’s easy to make new sales an individual KPI. If you have a collaborative sales process, it may be better to have the entire sales team measured off an aggregate new sales figure. Often what you gain in unity around a common goal you lose in individual ownership over that goal. If net income is a vital KPI for your company, that means everyone is clearly aligned with the same objective, but each person can only have so much influence on the outcome. Many companies balance this by establishing one or two common company-level KPIs while also having one or two individual-/department-specific KPIs.
How do KPIs affect compensation?
Inevitably during a conversation about KPIs, someone will ask the question, “Does this affect my pay?” Salespeople are generally used to having new sales/new revenue determine at least a portion of their overall compensation, but back-office staff are less used to that. You can have KPIs affect anywhere from 0%-100% of someone’s overall compensation. You can use them solely to determine annual/quarterly bonuses. You can say that 50% of an employee’s bonus is KPI-determined and the other 50% is manager-determined. You have many options available to you, just take the time to figure out what works best for your company/practice.
Here are a few things to keep in mind and watch out for when implementing your KPIs: