One of the key ways to measure how your business is doing is by using key performance indicators, metrics that measure the performance factors of your business. To achieve your business goals you must need a lot of KPIs right? Wrong! Having a huge list of KPIs can actually have unintended consequences.
Too many KPIs (key performance indicators) are problematic for an organization because they lead to KPI overload. This overload is the situation of having excessive performance metrics to track towards attaining organizational goals. It is akin to information overload, leading to the resultant divergence of focus to the point that each target receives inadequate attention, thus stifling each project execution.
As the common saying goes, “less is more”. Therefore, defining how many key performance indicators are essential for the functionality of an organization can be difficult.
Why Tracking Too Many KPIs Is Counterproductive?
Tracking too many Key Performance Indicators leads to an undesirable information overload, also known as analysis paralysis, where there is so much feedback and information that management are unable to gain a clear focus on the key elements of the business.
An excess of key performance indicators overwhelms the company management with data to the point that it becomes problematic to give attention to the details necessary for program and project coordination.
KPIs should provide invaluable metrics for organizations to measure progress and performance and not hinder performance management.
Example KPIs include:
- Number of sales made
- Number of products made
- Number of customers lost
- Number of complaints
KPIs are typically measured over a specific time period, for example a sales manager would want to know how many deals have been closed that day, that week, that month.
Measuring over a specific duration allows you to compare performance over time. So the sales manager can see if his team are performing better or worse than the previous day and take appropriate action.
The sales team leader will have KPIs per team member, the department manager will have KPIs for teams, and the director will have KPIs for regions.
On a day-to-day basis the director wouldn’t get reports for every sales person in the organisation, it’s too much information, they need to see how each region is doing rather than each individual.
This is a very simplistic example, but it demonstrates the “less is more” principle. The fewer KPIs an organization works with, the more accurately it can focus on the critical aspects of management to establish a transformational change in the company toward realizing the company goals.
Too many performance indicators can frustrate this process; measuring everything within the organization results in having to spend time reviewing everything that’s been measured rather than focus on strategic direction.
A handful of indicators is sufficient to capture the company’s fundamental goals and maintain focus. In contrast, too many of them can dilute the manager’s focus necessary for accurate measurement and estimation.
What Problems Could Result From Creating Too Many KPIs?
Knowing or stating that too many KPIs are problematic is insufficient to drive home valuable information. It is important to explore what problems arise from having too many of them.
- It can be exhausting and disorganizing, as team members struggle with multiple areas of focus.
- It can become overwhelming to manage and keep up with all the indicators.
Here is what we mean!
Your key performance indicator should act as an alarm to highlight areas where your business isn’t doing well.
However, having to spend time reviewing too many indicators distracts you from addressing actual organizational problems.
At a management level, key performance indicators should be predicated on your organizational goals. This way, you can stick to what is worth measuring and how the derived results affect your business.
You will also discover areas worth improving toward attaining your company goals instead of getting carried away with the endless charting of performance metrics not worth measuring.
However, it raises the question of how many key performance indicators are better and how to know how much is a lot. Interestingly, there is no specific or ideal number of key performance indicators.
The reason is that company goals differ, and factors of production are unique for every organization. However, some analytical experts suggest that 2 to 6 KPIs are the optimal number at a senior level.
That shouldn’t be confused with only having 2 to 6 in the entire business: each department and manager will likely have their own set of KPIs specific to the role they’re undertaking. In the example above a sales manager wants to know sales targets, another example would be customer satisfaction scores in the Customer Service team. Different teams, different KPIs.
How To Determine When You Are Dealing With Too Many KPIs.
Since there is no standard number of key performance indicators for an organization to work with, determining the perfect number can be challenging.
Here are some essential tips to help you determine when you have too many key performance indicators on your plate:
Match Your KPIs to Your Organizational Goals and Objectives.
Your KPIs should be linked to your goals to create a better and more effective performance metric. Key performance indicators prove that your organization is making progress; separating them from your goals defeats the very essence of their existence.
Additionally, organizations invest a significant amount of energy in defining their goals. Therefore, most establishments tend to have fewer goals. Thus linking your indicators to your goals indirectly reduces them to a reasonable number and prevents data or information overload.
Choose Your Goals According to Priority To Make Them Fewer.
According to most management experts, an organization should have no more than three goals, with other analysts favoring four. The idea behind setting fewer goals is to increase focus by streamlining them.
Also, it is an effective strategy to eliminate redundant and repetitive tasks that add no value to the organization. It is good practice to stick to fewer goals regardless of how numerous you feel your awaiting goals are.
The idea is to take them in sets or batches of threes, thus creating smaller cycles for achieving multiple goals in smaller bits to maintain focus. The reason is that organizational performance should be handled as a journey rather than a one-time affair. This way, you create more growth and development opportunities supporting your long-term goals.
Maintain Fewer KPIs for Each Organizational Goal.
It is counterproductive to have fewer goals and a litany of KPIs for each goal. The reason is that although fewer goals stimulate the required focus for peak achievement, several KPIs per organizational goal ruin the stimulated focus by creating a mental and management divergence leading to further exhaustion and data overload.
Usually, one to two is sufficient for a specific goal. If you cannot streamline your key performance indicator for a particular company goal, it is significant proof that your plans are not well-defined.
How To Maintain a Healthy Balance Between Your Organizational Goals and Their Specific KPIs
Maintaining a balance between organizational goals and key performance indicators can be challenging because of the thin line between them. However, the easiest strategy is strictly sticking to these critical performance metrics.
In other words, if it is unnecessary, it should be abandoned. This way, you optimize your organizational performance without doing so much. The rationale behind optimizing performance is prioritizing tasks. Also, it would help if you refrained from setting too many or too few metrics.
Here is an effective strategy for establishing a balance with your performance metrics:
Avoid Setting Too Many Performance Metrics.
It is impossible to measure every single target in your organization. As a result, you cannot have a KPI for every task as you will fall prey to an overload of information, which can negatively impact your overall performance. Furthermore, you lose significant time, having to make decisions on which performance indicator to analyze.
Avoid Having Too Few Performance Metrics.
Having too few performance metrics creates a shortage of measuring factors for organizational productivity. As a result, you could become short-sighted with several significant organizational situations eluding your notice. This way, establishing strategies for improvement becomes more and more difficult, thus discouraging substantial members of the organization.
How Should KPI Be Effectively Managed?
KPIs are effectively managed when fewer numbers are maintained. The reason is that they are inherently yardsticks for monitoring organizational performance, including individual progress, such as tracking employee efficiency and productivity. Essentially, they help you measure objectives and goals that are quantifiable.
In other words, they are not the organizational goals but measuring or tracking elements for quantifying success. They function as your corporate compass to chart the direction of movement. As a result, every manager, through KPIs, can decipher when the company is depreciating, even if it is not obvious to the rest of the team.
The most effective way of managing them is to make them SMART: Specific, Achievable, Realistic, and Timely.
What Are the Advantages and Disadvantages of KPIs?
Even though key performance indicators provide a valuable yardstick for tracking organizational performance, they are not without certain advantages and disadvantages.
Here is a table summarizing the merits and demerits of working with KPIs.
|They expose any underlying employee knowledge gap that affects their efficiency.||Creating them can be time-consuming.|
|They make employees more active by calling them to action while encouraging employee engagement.||They require a learning curve to master effective creation and have the possibility of complicating issues.|
|They create a useful metric for tracking organizational outcomes and results.||They can discourage team members due to data and information overload.|
|They serve as effective tools in goal setting and tracking.||There is the problem of possible information and data overload.|
|They encourage internal communication and maintain team accountability.||They decrease focus and motivation among management staff.|
|They keep organizational members aligned with organizational goals and objectives.||They can easily be misinterpreted for organizational goals.|
Common Examples of Key Performance Indicators
KPIs are different for every organization and depend on the organization’s various management sectors. Also, they are only valuable in the context within which they are created and utilized.
Here are some of the most common examples of key performance indicators in most establishments.
|Common KPI Examples||Expected Organizational Target|
|Finance||Measures returns on sales and investment.|
|Operations||Manages total organizational efficiency.|
|Healthcare||Monitors average sick reports, sick leaves, treatment costs, and mortality.|
|Banking||Tracks assets, loans, and liability.|
|Retail||Tracks customer satisfaction and overall sales.|
|Project management||Tracks teamwork, project execution, and employee efficiency.|
|Corporate social responsibility||Monitors stakeholder operations and other external activities of the company.|
How To Set Up an Effective KPI?
Since all KPIs are not equal and are only effective in the context of their creation, it is essential to set up effective KPIs, which are measurable metrics that matter to the organization and why they were created.
Here are two workable strategies for creating effective KPIs that matter:
Review Your KPIs Consistently.
Since organizational goals change, therefore key performance indicators cannot be static. As a result, regular reviews of your performance metric and organizational goals will help reinforce them.
Set Up Actionable KPIs
Setting up actionable key indicators means creating ones that produce results because they are directly related to the organizational goals.
You can make your key performance indicators actionable by the following steps:
- Reviewing organizational goals
- Analyzing current performance
- Dividing your KPIs into long and short-term projects
- Reviewing the projects with your operations team
- Carrying out consistent project appraisal
- Leaving room for adjustment and improvement.
Frequently Asked Questions
What Does KPI Mean for an Employee?
Key performance indicators (KPI) for an employee serve as yardsticks for measuring their productivity in the workplace. It also enables the employer to track employees’ ability to meet company expectations and overall effect on the business.
What Makes KPIs Effective?
Streamlining KPIs without generalizing them makes them more effective as it increases focus in all facets of organizational management and coordination of all factors of production. Effective key performance indicators are more measurable because they are targeted milestones.
How Many KPIs Should an Establishment Ideally Have?
As a general rule, according to several management experts, the ideal number of key performance indicators for any establishment is between two to three. This way, it eliminates every tendency for information and data overload.
Key performance indicators provide an effective method for tracking organizational performance across various metrics.
Understanding key performance indicators and how to implement them in the operations management of your company optimize the business process for long-term success and profitability.