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What is the KPI System and how to use it in business processes?

Aleksandr Fedorenko
7 min read
13.06.2020

KPI is a numerical indicator of the activity of an association (department, branch) or one employee, which allows the company to assess the effectiveness of the participation of an employee/team in the work of the entire company in order to achieve strategic goals. Simply put, a KPI is a ratio of actual results displayed in numbers.

Automated KPI systems for business processes are implemented as a software solution. They can be used in any industry at any development stage of an enterprise. The program automates the management of activities and employees, as it includes such elements as:

  • goal setting;
  • distribution of tasks;
  • assessment of compliance with the execution protocol;
  • calculation of wages or remuneration.

The KPI system helps managers or the owner to monitor the staff, evaluate the efficiency of each employee, and pay wages outside the framework of a fixed salary, based on the actual result.

It is important that in order to use a software solution it is not at all necessary to install software on the company’s computers, therefore the risk of conflicts and incompatibility of hardware is eliminated. It is enough to connect your computer to the Internet. Monitoring is carried out in real time through a remote server using a browser. It is also possible to use the software solution through a mobile application.

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KPI and BSS Comparison

Often, uninformed users compare KPIs with the Balanced Scorecard. But this is not the case. The coefficient KPI is indirectly related to the BSC. But only indirectly. The Balanced Scorecard displays goals. Yet the key metrics of KPI display digital data on the achievement of goals.

Interesting fact: What is KPI in practice? Feedback on the use of the automated KPI system confirms that, while using this tool, the manager does not intuitively define, but documents the role of a particular employee or department in achieving a strategic goal. Top management and department heads who get such a tool in hand really manage the staff, instead of doing all the work for them. And ordinary employees at enterprises working with piece-rate pay see how much they have already earned at any given time, how much needs to be done to fulfill the plan and to reach the highest possible level of remuneration. A transparent system of material incentives appears. There are no questions about which employee should be awarded, since the salary is calculated based on the result. The activity of the team is reoriented from performing processes to achieving results.

What metrics can be displayed using KPIs?

What KPI stands for is clear. And what metrics can we display using performance indicators?

  • result: volume of products, services rendered, goods sold;
  • investments: the amount of resources spent by a specific employee or department;
  • functioning: this indicator helps to determine the compliance of the process with the standards, protocol;
  • You can track the proportionality of the result and the time it took to get it;
  • track the proportion of the result to the resources spent.

When setting up a software solution for a specific business, it is important to comply with the conditions:

  • The indicator set contains only important indicators.
  • All parameters can be measured in numbers.

KPI in Practice

In order to understand how to calculate the KPIs, let's consider the example of calculating the key metrics of the warehouse of an online store. In this case, it is important to identify the main indicators that will be monitored.

The result of "Online store warehouse operations"

First, we identify the goods to be delivered according to the delivery plan. Then, the data on warehouse employees and their working conditions will be entered into the program. We also take into account recommendations for the movement of warehouse goods, rules for processing applications, plans for shipment of orders through a transport company. Once you know what the company is aiming for, you can measure it digitally using formulas or other means. To be more clear, let’s demonstrate some possible key performance indicators:

  • The number of applications for the shipment of paid goods - KPI-1.
  • Percentage of orders shipped on time - KPI-2. The ratio is equal to KPI-1 / Z * 100%. In this formula, Z will mean the total number of requests for shipping goods.
  • Percentage of goods of appropriate quality sent to customers - KPI-3. The indicator is calculated by A / B * 100%. In the interpretation of the formula "A" means the number of goods sent to customers on time. And "B" means the total volume of orders processed by the warehouse.

You can also generate a cost indicator:

  • KPI-4 - transportation costs for sending orders.

The software solution allows you to form an indicator of related expenses.

  • KPI-5 - staff costs, packing line costs.

If you are interested in compliance with work standards, you can configure the program to display the corresponding indicator.

  • KPI-6 - the number of cases of late submission of reports to the finance department.

Result “Warehouse Operation”

What are some examples of personnel KPIs? If it is important for the owner or manager to calculate efficiency, they can analyze the results and the time spent on achieving those. Let's take the average number of requests processed by the warehouse per week as the productivity ratio. Then:

  • KPI-7 = C / r. In this formula, “C” stands for the number of orders per month, and “r” indicates the number of workdays in a month.

Any business related key metrics can be calculated this way. An example of KPIs could be the assessment of the effectiveness of projects or departments.

How to use a numeric measure of activity in the planning department?

Consider the use of software in a planning and control department. Since the business KPI measures the ratio of the result and the cost, the tool can be used for planning and control. Planning indicators in the same warehouse can be the percentage of orders completed and the percentage of orders sent to customers on time. When the reporting period is over, the actual values ​​are measured. If there is a noticeable difference between the planned and the actual result, we analyze the reasons that led to the disagreement. This allows you to plan corrective mechanisms.

Benefits of Using Automated KPI Solutions

The company's short-term and long-term strategy is based on the analysis of activities and results. When planning is done intuitively, without understanding the actual indicators and in isolation from the actual performance, you may not be able to achieve the strategic goals. The plans of your organization will change, the development strategy will transform arbitrarily.

If you use KPI systems for a project, it is easier to avoid such consequences. The indicators used in the KPI system reflect the real processes that determine all the activities of the company.

It is important that the analysis of KPI indicators becomes an effective element of staff motivation. This is due to the fact that the planned and actual values ​​of employees' activities are recorded. Data analysis allows the manager to understand what to reward the employee for, how to motivate him. And the staff, in its turn, understands what remuneration they will receive, how to arrange activities in order to fulfill the plan, and for what to expect a decrease in the amount of remuneration.

For instance:

  • the warehouse manager can be financially rewarded for fulfilling the KPI indicators (shipment of orders to customers) and for the optimal ratio of the result to the time spent;
  • he may also be deprived of the bonus if the warehouse does not meet the performance indicators - in case of delays in the shipment date.
  • That is, an employee's KPI allows the company to determine if the desired results were achieved. The employee, in his/her turn, is highly motivated.

Choosing a KPI is a Crucial Step

Many companies are ready to use software-based KPI solutions, but certain factors stop them:

  • They don't know how to define KPI metrics and develop a KPI system.
  • The company is not ready to spend a lot of money on developing a personal software solution.
  • Staff training is required to work with the new program.
  • The IT department is not able to ensure the functioning of the system.

This can really be an obstacle for the implementation of a KPI system. It is simple to avoid this situation - you can use a ready-made service with the following capabilities:

  • a quick start;
  • adaptation of software solutions to business requirements;
  • usage of the system by people without programming skills.

Let us present you the Waytobi solution. The service:

  • does not require large maintenance costs;
  • does not involve special training of the personnel;
  • has a simple and intuitive interface;
  • development of a system with settings for specific customer needs.

You can learn more about the automated KPI system from Waytobi by contacting our project managers. We will be glad to answer your questions.

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