There is often a lot of confusion surrounding the definition and use of the various metrics: KRA, KRI, PI, and KPI. In this article I will try to clarify the difference between each and how they apply to dashboards and dashboards.
First, let’s review the difference between a dashboard and a scorecard:
The main difference between the two is that dashboards monitor the performance of operational processes. [events and transactions] while dashboards show progress towards tactical and strategic objectives. In addition, a scorecard is based on a management methodology, such as the balanced scorecard. They are a direct indicator of how well the corporate strategy is being executed.
Quick metric definitions
KRI – Key result indicators indicate what you have done in key result areas. [KRA’s]. These are general result areas where the overall performance metric, KRI, is the result of many actions.
Pi – performance indicators tell you what to do. These are more focused on specific areas smaller than KRIs, but less powerful than KPIs.
KPI – Key performance indicators tell you what to do to dramatically increase performance. They are the result of an action and are directly linked to a strategic objective.
KRIs are indicators of how well the organization is governed and the board measures and uses them to measure the effectiveness of overall management decisions. For an effective KRI board, you will have no more than 10-12 measurements.
- Financial measures * such as return on capital employed, NPBIT, EBIT
- Customer measures such as customer satisfaction and customer profitability.
- Internal measures such as employee turnover, employee satisfaction
These measures are broad, covering long periods of time, such as quarters or years.
* In general, all financial measures are KRI as they are historical and are contributed by a number of contributing factors. When a focused financial measure is directly related to a strategic imperative with a financial result, then in some cases, a financial metric can also be a KPI for a defined period.
Indicators of performance
These are metrics that represent performance in a particular area and can be both strategic and tactical. They represent a more focused area of performance than a KRI, but may not necessarily be critical to overall strategic execution. For example, PIs can include measures such as:
- Profitability of the top 10% of customers
- Net profit from a particular product group
- Percentage increase in sales in a particular region
- Percentage participation of employees in the training scheme
KPIs are direct indicators of management decisions at the strategic level; that is, they are the most critical metrics of the company in terms of achieving a significant improvement in performance.
KPIs are the result of an action that directly contributes to a strategic objective and they are measured in very short periods of time: hours, days, weeks and months.
An effective KPI dashboard can have more measures than a KRI dashboard, but never more than 18-12. The selection of measurements will be determined by the purpose of the board. For example, a department dashboard may have only 8 KPIs, while a department balanced scorecard will generally include a combination of PIs and KPIs and may include between 18 and 20 measures. Remember that the difference between a dashboard and a scorecard is that a scorecard has a methodology attached to it.
There is no one ideal KPI list for every company, not even every company within an industry. The reason for this is that two competing companies may have totally different strategic imperatives. A strategic imperative is that overriding strategic objective that all other strategic objectives serve. It is the dominant focus of the company.
Therefore, two manufacturers may have similar IP and strategic objectives, but one manufacturer may focus on expansion to gain a dominant foothold in an emerging market and see this as the most critical objective to sustain its competitive future. The other manufacturer may be more focused on reducing its number of customers and increasing the annual sales value of each customer.
However, KPIs share common characteristics that include:
- They are future-oriented because they have a significant impact on meeting a strategic objective.
- They are linked to responsibilities of teams and individuals.
- They generally affect all other performance measures and more than one BSC perspective.
- They are non-financial
- They have short measurement cycles and must be constantly monitored
Therefore, these measures have a direct link from the strategy established by the senior executive team throughout the organization to the people. It is imperative that everyone has a good understanding of the importance and impact of these measures, and the corrective action required if performance is not meeting targets.
For example, if meeting manufacturing deadlines is a KPI that contributes to the strategic imperative, then if there are indications that deadlines are being missed, immediate action will be taken to attract more staff, improve throughput productivity, resolve any production issues. supply and identify and correct any other contributing factors. This metric will have an impact on other measures such as customer retention rates, order values, customer satisfaction, production capacity and process efficiency, etc.