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Understanding the Difference Between Performance Indicators and Key Performance Indicators

Tuesday, February 7, 2012

I was planning to write yet another article on key performance indicators because I felt Dashboard Insight needed an up-to-date reference for those who did not practice in performance management. I initially started writing the article, thinking I didn't need any reference material. I've lived through understanding, discovering, and refining measures for the last six years and I felt I could write it solely on experience.

Surprisingly, I had a hard time defining what a key performance indicator is without having to introduce more terms and, thus, more explanations.

Further reflecting on my experiences in business intelligence, I wasn’t sure if a simple explanation was possible. One person's performance indicator may be another's key performance indicator. For example, the number of leads by day would be a performance indicator for the CEO; however, for the marketing department, it may be a key performance indicator. The confusion doesn't stop there. Technically speaking, it could be a key result indicator for marketing - the number of leads is the result of all the activities marketing performs.

After much confusion trying to explain the difference between performance and key performance indicators (AND result indicators), I decided to step back and look at it from a different perspective.

Rather than fight through terminology, these are the questions decision makers need to ask themselves when choosing measures to look at:

  1. Is the measure clearly linked to an activity that I am responsible for?
  2. Does the measure support another measure to help in my decision-making process?

If the answer is no to both questions, than the measure is simply nice-to-have. There's nothing wrong with having these types of measures as part of your report or dashboard.

If you're not a performance management practitioner, you don't need to understand concepts like lead and lag indicators or result and performance indicators. Let the performance management consultants deal in those terms. Just remember to ask yourself these questions when you're given measures to look at and you'll know whether or not you need them to help support your decisions.

Many will question the simplicity of my explanation, but I believe that this is a good starting point for anyone who plans on working with performance management consultants.

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