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Anatomy Of A KPI
From raw number to clarity

by Terry Brown, Director of Marketing , http://www.klipfolio.comMonday, December 13, 2010

The use of KPIs (Key Performance Indicators) is an integral part of business intelligence. The careful definition and use of a KPI, enable a business or department to monitor its progress against these goals.

Let’s use a simple scenario to take a raw number and turn it into a KPI that is concise, clear and has meaning.

Consider the finance department within a company. One of the key objectives is to reduce the amount of outstanding invoices to increase cash flow.

1 24.672 The raw number. Care is taken to create a value that is current, but calculated over an appropriate time range, so as not to be too volatile.
2 $24.7K

Add appropriate decimal places
Add suffix if applicable
prefix if applicable

The overall objective is refined to: Reduce outstanding payables over 30 days to less than $30k.

3 $24.7K

Add acceptable range context
Traffic lights for example (shape and colour differentiate)

They wish to compare the current metric to the historical average to indicate movement; trending up, down or unchanged.

4 $24.7K

Add trend context
Based on historical values and average or benchmark data

We now have a KPI that is not simply a number; we’ve added meaning and insight without adding complexity. Where the above KPI is mean for at-a-glance awareness, tooltips and hover-over states can provide additional context to the metric as seen in step 5.

$24.7K This current value is averaged over the past 30 days.
For the metric, the acceptable range is between $25.0K and $35.0K
The average for the past 30 dats was $23.2K
  To correct this metric, the following X and Y are suggested

This additional level of detail may contain the following:

  • The time range and calculation details
  • Acceptable range details
  • Contextual info about historical values
  • Even suggested actions (using if / then logic)

This example highlights the key characteristics of a KPI: it is relevant and associated with a high-level goal for the company; it can be measured as a numeric value, one that provides context, from an operational system. It is tied to a group/departments activity; they are accountable to take action to keep the KPI within the identified thresholds.

Alternative visualizations of the above

A $24.7K

A gauge or bullet-chart can provide all of the contextual details. The colour bands display the acceptable range; the marker the historical value for trending purposes, and the bullet (line), the current value (which equates to $24.7K)

B $24.7K

Likewise, where there is value visualizing the fluctuations, a sparkline can be used as well. Here we use a reference-band to identify the acceptable range.

There is significant research regarding which metrics matter to specific industries. However, it is important to understand that the performance indicators that are key for an individual organization cannot be dictated by an out-of-the-box solution. They vary depending on the industry, the functional area of the company, and the unique needs and focus of the organization. Contact us at Klipfolio or refer to our article for more on this subject; KPIs, Dashboards and Operational Metrics Doing More With Less.

About the author

Terry Brown is the Director of Marketing at Klipfolio Inc., an Ottawa enterprise dashboard software vendor that helps accelerate business decision-making through real-time awareness of key performance metrics. He can be reached at tbrown@klipfolio.com or Twitter: @terryalanbrown

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