What does Key Performance Indicator (KPI) mean?

Key Performance Indicator (KPI)
KPIs are financial and non-financial that are used to meansure progress towards business objectives. In project management, the success of a project can be measured by how well it achieves it's KPIs.

Throughout the project lifecycle, project managers should track progress against the KPIs. This is so that if there are any issues they can take action early (this is better than finding that the KPIs won't be met once the project has finished). For example, a progress check during project build could reveal that the project won't meet it's KPIs giving the project board the opportunity to cancel the project reducing the financial loss. See also What is Performance Reporting?

Examples of KPIs

Here are some example KPIs from a manufacturing company project. They could apply to many other industries, including manufacturing and utilities.

1. capital cost
2. schedule
3. accidents involving its staff
4. accidents involving contractor staff
5. variations to plan
6. predicted first year production
7. satisfaction among stakeholders

1. Capital Cost

Budget vs. Actual: Measures the difference between the budgeted capital costs and the actual capital expenditures. This KPI helps in understanding how effectively resources are being managed.

Cost Variance Percentage: Calculates the percentage variance between the planned budget and the actual spending. A critical metric for financial health monitoring.

2. Schedule

Project Schedule Adherence: Measures the percentage of tasks or projects completed on time. It is crucial for assessing the efficiency of project management and timeline adherence.

On-Time Delivery Rate: For manufacturing and utilities, this KPI tracks the percentage of products or services delivered to customers within the agreed timeline.

3. Accidents Involving Its Staff

Total Recordable Incident Rate (TRIR): Calculates the number of work-related injuries and illnesses per 100 full-time employees. This metric is widely used to assess workplace safety.

Lost Time Injury Frequency Rate (LTIFR): Measures the number of lost time injuries occurring in a workplace per 1 million hours worked. It highlights the severity of accidents involving staff.

4. Accidents Involving Contractor Staff

Contractor Incident Rate: Similar to TRIR but specifically for contractor personnel. It measures the number of safety incidents involving contractor staff per 100 full-time equivalent contractors.

Contractor Lost Time Injury Rate: Reflects the number of lost time injuries per 1 million hours worked by contractors, providing insight into the safety of the working environment for contracted employees.

5. Variations to Plan

Change Orders as a Percentage of Total Project Cost: Indicates the financial impact of changes to the project plan, measuring the cost of change orders against the total project budget.

Schedule Variance: Compares the actual project progress to the planned schedule, quantifying any deviations in terms of time.

6. Predicted First Year Production

Production Capacity Utilization: Measures the percentage of the manufacturing or utility plant’s total capacity that is actually used for production in the first year.

Actual vs. Forecasted Production Volume: Compares the actual production volume in the first year against the forecasted figures, assessing the accuracy of production predictions.

7. Satisfaction Among Stakeholders

Net Promoter Score (NPS): Gauges stakeholder satisfaction and loyalty by measuring the likelihood of stakeholders to recommend the company to others.

Stakeholder Satisfaction Index: A composite metric derived from surveys and feedback mechanisms to quantify the satisfaction levels among various stakeholders, including employees, customers, and suppliers.

Setting KPIs a few key tips:

Start by checking the project objectives

To identify criteria for your KPIs look at the project objectives and think about how you would know if an objective has been met.

For example, an objective to:

"free up call center agents to do complaints work"

could be measured by looking at the amount of calls that are resolved in one interaction before and after the project is delivered (call centers already have metric for this - first call resolution rate).

An objective to "increase customer satisfaction", could be measured through a satisfaction rating and this information is probably already being measured in your company.

Don't try to measure the unmeasurable

I once worked for a construction management company that had set an impressive goal for a new university building. Namely, that the structure would improve student health and well-being through its sublime lines and cutting edge architecture. As you can imagine it was not possible to measure this objective. The university did measure student satisfaction, but did not have any measure of health and couldn't link that to the numerous buildings that students spent time in.

Try to have project objectives that can't measured, removed from the Business Case. Otherwise they will just become a point of contention later on.

Use target KPIs when you don't have to have a baseline measure

Some companies will want to measure an objective, but don't have any baseline to work from. In these cases you can still set a target KPI which can be measured when the data is available. For example:

KPI 001 - Stakeholder satisfaction target 50 - 60% in month 1.

For great KPIs use SMART

The KPIs that you decide on should be SMART.

• Specific - make sure it is completely clear what you are going to measure
• Measurable - check you have a way of measuring it i.e. gathering the data
• Realistic - if you have a big audicious goal, break it down so that it can be delivered in phases. For example:

  Phase one KPI: implement online help system - achieve 5% call deflection.
  Phase two KPI: analyze phone calls and create FAQs to answers to top 50 common queries - achieve 35% call deflection.

• Time-bound - set a deadline for achieving the KPI. This could be an arbitary date or it may be linked to an important milestone.

Red Flag! Don't set arbitary deadlines

Beware of Project Sponsors setting impossible and arbitary deadlines. In our experience this happens a lot and seems to be an attempt to 'establish a sense of urgency' see Kotter's Leading Change step 1.
There are a few ways to challenge this kind of short-sightedness for example:

• have a polite chat about the Iron Triangle of time, cost and quality (if you fix time, cost has to go up and/or quality has to go down).
• create a realistic project schedule showing a clear critical path,
• suggesting splitting the project in phases,
• set out clearly the risks and how much it will cost to mitigate them.

Download a Quality Metrics Template

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