KPIs are Key Performance Indicators. Indicators vary. Key ones are those that affect profit. The indicator itself may change quite a bit, but the profit can change significantly.

For example, the owner of a barbershop calculated that if he increases the average bill of a barber by 100 rubles, annual revenue will increase by 300 thousand rubles. If expenses remain the same, profits will increase. The average check of a barber for a barbershop is a key indicator.

Why are KPIs needed?

The purpose of KPI is to make life easier for the head of the enterprise, the business owner and ordinary employees. I implemented a KPI system when our team grew from two people to 22. Too much time began to be spent on solving operational problems, and there was not enough time for direct directorial responsibilities. Thanks to KPI, I have delegated authority and responsibility to the level of department heads and ordinary employees, but nevertheless I control everything.

When KPIs are not useful, the fact is that the company is not working with them correctly. This is exactly what happened to the co-owners of a cosmetology clinic. They worked with the sales funnel, collected indicators, but did not know what to do with them next. And when we figured out what indicators affect and who should be responsible for each, in three months we turned the business from unprofitable to profitable.

How to work with KPIs

We implement KPIs

Authors of books on management depict the implementation of KPIs as a multi-stage procedure: describe the organizational structure of the company, financial structure, business processes. With this approach, the process threatens to drag on for at least six months. Large businesses may be able to do this. But small businesses cannot afford to mark time for so long.

But there is an easier and faster way. You will need to determine which indicators have the most significant impact on profits and who in the company influences these indicators. There is no universal set of indicators. They are individual for each business. For online sales, the key indicators are cost per click and website conversion. For a call center - the duration of operator conversations.

We identified an indicator that affects profit, understood who it depends on, and appointed someone responsible.

We motivate staff

The next step is to create a staff motivation system. The popular option, when an employee’s bonus is tied to the overall result of the company or division, does not work well. The employee is responsible for his own results. But how will it affect the results of colleagues? Therefore, you need to know what a specific subordinate influences and is responsible for, and tie everyone’s bonuses to their individual results.

It is necessary to take into account whether the employee directly or indirectly influences the financial result. Our team includes an editorial team that produces content for the site. Content works to increase demand, but indirectly. The editorial office is a cost center. Therefore, there is no point in tying the editor-in-chief’s motivation to profit. But the sales department has a plan for the number of calls and the conversion of applications into sales. They directly affect revenue.

A sign of a good KPI motivation system is when an employee in the middle of the month sees how much has already been done and what needs to be done to get as much as he wants.

Drawing conclusions based on KPIs

Employees do not always achieve targets. And not always through your own fault. When you see that something is going wrong, do not rush to shoot the staff in the corridor. First, figure out what the reason is. If the employee is not at fault, then we need to help him and create conditions under which he can achieve target indicators.

If an employee does not fulfill the plan from month to month and the problem is with him, all that remains is to replace him with someone who will cope. Neither charm nor the good attitude of management will save you here. These factors are powerless against indicators.

We audit the KPI system

Implementing and establishing a KPI system is not everything. You must understand: the system you have implemented is not once and for all. Things are constantly changing in business. With each change, the KPI system may need to be adjusted. You need to be prepared for this.

When you need to adjust the KPI system, figure out which indicators are no longer relevant, which ones need to be replaced, and who should be responsible for the new indicators. It is easier to adjust a system than to create it from scratch.

The motivation system also needs adjustment. This is best done with the involvement of employees. Every employee has personal goals. And the motivation system works best when both you and the employee understand what he wants and what he must do for the company in order to realize his personal goals. If an employee wants to earn 150 thousand a month, let his salary be 75, and the rest - bonuses. So he will understand that he costs 75 thousand, but can earn 150 if he is a successful professional.

Remember

• Understand what indicators affect profits and who in the company influences them.
• Select the key indicators that have the greatest impact on profits and assign responsibility for them. Set 2-3 clear KPIs for each department.
• Motivate employees based on their key indicators.
• Monitor whether employees are achieving targets.
• When the indicators are not achieved, figure out what the reason is. If an employee needs help, help. If this is the case, replace it with something else.
• Constantly audit the KPI and motivation system. Make adjustments when you realize the system needs them.

Personnel based on KPIs are becoming increasingly popular in Russia. The main advantages of such mechanisms are the rational reflection of company activities.

KPI: what is it?

KPI (KPIs) is an English abbreviation for “key performance indicators”, in Russian it is referred to as KPI - key performance indicators (sometimes - parameters). But in the original foreign sound it is used as a norm. KPI is a system that allows you to evaluate the performance of company employees in terms of achieving goals (strategic and tactical).

“Key indicators” allow a company to analyze the quality of its structure and its potential in solving problems. The most important factor system is also formed on the basis of KPI: if there are no targeting signs, then there is nothing to apply the “key indicators”. and KPI, therefore, are two interrelated phenomena. The first involves, first of all, predicting the results of work, as well as planning how these results will be achieved.

Who came up with KPIs?

History does not give a clear answer to this question, but we can trace how global management moved towards understanding KPIs, what they are and why they are useful. In the late 19th and early 20th centuries, sociologist Max Weber determined that there are two ways to evaluate employee performance: the so-called “sultanic” and meritocratic. According to the first, the boss (“Sultan”), at his own discretion, assessed how well a person copes with his duties. The rational principle here plays a secondary role; the main thing is the purely emotional perception of the subordinate’s work.

The meritocratic method is when labor results are assessed based on real achievements, with the inclusion of objective measurement mechanisms. This approach was adapted by management theorists in Western countries and gradually crystallized into what we know as the KPI system. An important role in systematizing the rational assessment of personnel performance was played by the works of Peter Drucker, who is considered to have turned management into a scientific discipline. The scientist’s concepts directly state that there are goals, and there is an assessment of the degree of their achievement through key performance indicators.

Pros of KPIs

The main positive side of the KPI system is the presence of a mechanism for assessing labor and the performance of the enterprise as a whole, which is transparent to all employees of the company. This allows management to evaluate the performance of all subordinate structures in real time, to predict how tasks will be solved and goals will be achieved. The next advantage of KPI is that management has a tool for adjusting the work of subordinates if current results lag behind the planned ones.

If, for example, performance measurement in the first half of the year reveals that performance is not high enough, then work meetings are held to identify the reasons and encourage employees to do better work after the next six months. Another positive side of KPI is feedback between the specialist and the manager. The first will receive not just instructions and sometimes seemingly biased nagging, but well-founded comments, the second will receive improved performance by specifying errors and shortcomings in the work performed by the subordinate.

Cons of KPIs

The results of assessments within the framework of KPI (performance indicators as such) may not be interpreted entirely correctly, and this is the main drawback of this system. As a rule, the probability of such a problem occurring is lower, the higher the attention paid at the stage of forming criteria for how to evaluate performance parameters. Another disadvantage of KPI is that in order for a company to implement this system, it will have to spend a lot of resources (calculated, as a rule, in time, labor and finances). We are talking, of course, about working on the key performance parameters of the proper level of elaboration. There is a possibility that large-scale retraining of employees will have to be carried out: specialists - with a view to changing tasks, and therefore working conditions, while management will have to master new methods of assessing the work of subordinates. The company may not be ready to give the team extra time to master innovations.

Subtleties of KPI implementation

The main task when implementing a KPI system (“from scratch”) is to prevent a negative attitude towards it from employees. Therefore, the company’s management needs to clearly convey the meaning and practical benefits of innovations to each of the subordinates, whose work is subject to subsequent evaluation for effectiveness. The best technique here, according to some HR experts, is an individual presentation, an explanation to specialists in specific positions: KPIs - what they are and why to implement this system in the company.

It would be a mistake to unconditionally impose efficiency parameters by order, but a necessary step is an appeal from the top officials of the company. If, for example, a line manager informs subordinates in his department about the imminent implementation of KPIs, then this information must also be confirmed by the general director. A specialist must understand that the system of key performance parameters is not an invention of the boss, but an element of the strategic policy of the entire company.

Optimal timing for KPI implementation

Among experts, there is an opinion that KPI indicators, when it comes to a system, should be implemented simultaneously at all levels of company management - from ordinary specialists to top managers. According to this point of view, the implementation time frame for key performance parameters cannot be extended over time: the system begins to work immediately. The only question is how to optimally choose the moment to launch it. There is a point of view that it is enough to notify employees about the launch of KPIs approximately three months in advance. This turns out to be enough for the company’s personnel to study the specifics of future assessment of the effectiveness of their work.

There is also a thesis that for some time KPI can work in parallel with the previous payment system. Depending on the degree of liberalism of the management, the employee will be able to choose according to which scheme his salary will be calculated. It is quite possible to motivate a person to work according to the new KPI through bonuses and premiums, the conditions for receiving which will be clearly stated in the key parameters.

Stages of creating a KPI system

Actually, the implementation of KPI mechanisms is preceded by several stages of preparatory work. Firstly, this is the period associated with the formulation of strategic goals that are set for the company. As part of this same stage of work, the general concept is divided into tactical sections, the effectiveness of which is to be measured. Secondly, it is the development of key performance indicators and the definition of their essence. Thirdly, this is work on the distribution of official powers related to the implementation of the system, so that each responsible person asks a question like “KPIs - what are they?”

Thus, all indicators will be assigned to specific individuals (divisions) in the company. Fourthly, adjustments to current business processes may be necessary (if the updated strategy requires it). Fifthly, this is the development of a new system, creating salary calculation formulas according to new criteria. After completing all the specified procedures, you can launch the KPI system.

KPI requirements

As mentioned above, KPIs are key performance indicators that are inseparably linked to the company's goals. The quality of targeting is the main requirement for the KPI system. Goals can be formed according to different principles, but one of the most popular in the HR environment is the SMART concept. It means “specific”, “measurable”, “achievable”, “relevant”, “time-bound”, and, as a result, giving worked out and quality KPIs.

Examples of goals that meet these criteria: “open so many (measurable) retail outlets (specific) in a city (relevant) in the first quarter (time-bound)”, or “sell so many air tickets to such and such a country in three weeks". Each goal should be divided into tasks, which, in turn, are reduced to the level of personal KPIs (for employees or departments). The optimal number, as some experts believe, is 6-8.

KPI automation

One of the factors for successful KPI implementation is technological infrastructure. Since KPIs are a set of rational indicators, a computer will do a very good job of working with them. There are many software solutions for KPI management. The capabilities available in such distributions are quite extensive. Firstly, it is a convenient presentation of information (in the form of graphs, analytics, documentation) about processes related to KPIs. What does this give? Mainly, the unity of perception of data, reducing the likelihood of misinterpretation of numbers. Secondly, the collection and calculation of performance indicators. Thirdly, this is a multidimensional (with very large volumes of numbers) analysis, which will be difficult for a person without a program to perform. Fourthly (if there is a network infrastructure), this is the exchange of information between individual employees and the establishment of “superior-subordinate” feedback channels.

Hello! In this article we will talk about the KPI system.

Today you will learn:

1. What is KPI.
2. How to calculate this indicator.
3. How to implement a KPI system in an enterprise.
4. About the pros and cons of this system.

What is KPI in simple words

KPI - this is a coefficient that determines the efficiency of a particular enterprise: how well it functions and whether it achieves its goals.

The decoding of this abbreviation is as follows - Key Performance Indicators, which is usually translated into Russian as “key performance indicators”.

If translated literally, the word “key” means “key”, “significant”, “indicators” - “indicators”, “indicators”, but with the word “performance” difficulties arise in translation, since here it is difficult to interpret unambiguously. There is a standard that gives the most correct translation of this word, dividing it into two terms: efficiency and effectiveness. Efficiency shows how the money spent and the results achieved compare, and effectiveness shows the extent to which the company managed to achieve the result that was intended.

Therefore, KPI is more correctly translated as “key performance indicator”. In simple terms, for dummies, so to speak, you can see that this system helps you figure out what measures need to be taken to improve efficiency. Efficiency covers all actions performed over a specified period of time, as well as the benefits received by the enterprise from each individual employee.

KPI indicators are as follows:

• Performance KPIs- shows the ratio of the spent monetary and time resources with the achieved result;
• Cost KPI- shows how many resources are involved;
• KPI result- illustrates the result obtained during the execution of tasks.

Because this system is not easy to implement, you should adhere to certain rules and principles that can become indispensable assistants when switching to KPIs:

1. The 10/80/10 rule. It states that a company must define 10 key performance indicators, 80 performance indicators, and 10 performance indicators. It is not recommended to use many more KPI indicators, because this risks overloading managers with unnecessary unnecessary work, and managers will certainly be preoccupied with finding out the reasons for non-fulfillment of indicators that have little impact on performance in general.
2. Alignment of performance indicators and strategic plan. Performance indicators have no meaning unless they are related to the current Critical Success Factors (CSFs) integrated into the Balanced Scorecard (BSS), and.
3. Manageability and controllability. Each division of the company responsible for its indicator must be provided with resources to manage it. The result must be controlled.
4. Integrating performance measurement, reporting and performance improvement processes. It is necessary to introduce a process for evaluating performance and reporting that will push employees to take the specific actions required. For this purpose, reporting meetings should be held to consider the issue being resolved.
5. Partnership. To successfully increase productivity, it is worth ensuring partnerships between all employees involved. Therefore, the way to implement the new system must be developed together. This will allow everyone to understand what the advantages of innovation are, and also to be convinced of the need for change.
6. Shifting efforts to the main directions. To increase productivity, it is necessary to expand the powers of specialists: help in, offer to develop your own KPIs, provide training.

How to calculate KPI

Paragraph 1. To calculate KPI, you need to select from three to five performance indicators that will be the specialist’s assessment criteria. For example, for an Internet marketer they could be as follows:

1. The number of website visitors attracted by a specialist.
2. A figure that shows how many purchases were made by customers who had previously contacted the company.
3. The number of commendable recommendations and customer responses on social networks or on the organization’s website after purchasing a product or service.

1. new customers - 0.5;
2. customers who made a repeat order - 0.25;
3. positive recommendations - 0.25.

Point 3. Now you need to analyze the data on all selected indicators for the last six months and draw up a plan:

Point 4. The next stage is the calculation of KPI indicators in Excel. It is necessary to use the formula for calculating KPI: KPI index = KPI weight*Fact/Goal.

Here, the goal is the indicator that the employee must achieve according to the plan, and the fact is what he has achieved in reality. The final figure is 113.70%, this is a good result, however, if you look at the table in more detail, you can see that the marketer did not fully fulfill the planned standards.

Point 5. We calculate wages. We will rely on the fact that the marketer’s total earnings are $800, of which the fixed part (salary) is $560, and the variable part (bonus) is $240. For a 100% index, the employee is entitled to a salary and a full bonus, but due to the fact that the plan is exceeded, the marketer will receive additional bonuses in the amount of 13.7% of the bonus, that is, $32.88. As a result, the employee’s salary will be $560+$240+$32.88=$832.88.

But when an employee does not fulfill the plan, and his performance indicator is below 99%, the bonus amount is proportionally reduced.

With the help of such calculations and drawing up a table, you can see the problems and difficulties that an Internet marketer faces.

Low performance may be due to the fact that the plan was drawn up incorrectly or the loyalty strategy itself is incorrect. The problem area needs to be monitored, and if things do not improve over time, then the right way out of the situation is to change the performance indicators.

Thanks to this approach, an understanding of the operating principle of KPIs is formed. Based on goals, the calculation can be supplemented with new values. This could be a system of fines, the number of solved and unsolved problems, and much more. For example, if less than 70% of the work according to plan is completed, the employee will not receive a bonus at all.

There is also an alternative way to calculate wages relative to the percentage of plan completion:

KPIs in practice

KPI performance indicator is used by almost all companies that engage in direct sales. Let's look at some examples for a sales manager. Having adopted the approved key indicators, he will see a clear picture of his activities: it will become clear to him how many goods need to be sold in order to reach a certain income, which ones.

For an insurance consultant who is new to the profession, the optimal efficiency ratio would be 1/10: to sell one insurance policy, you need to meet with 10 potential buyers.

There is also a KPI result, for example, “the number of new clients is not less than n”, “sales volume is not less than n”, etc. These indicators are personal, and it is better when their number is less than 5, and most importantly, they should be easily measurable and clearly formulated.

In addition to motivating employees, company managers use KPIs as a tool for analyzing the work of their subordinates.

This system allows you to clearly see gaps in activity and at what stage they arose. For example, the boss monitors the manager’s client base and how many calls and meetings the employee makes. If these indicators are met to a sufficient extent, but there are few sales, we can conclude that the employee lacks certain knowledge, skills or personal qualities to perform successfully.

KPI and enterprise planning

KPI indicators can be used in planning and monitoring activities. After the work has been done, actual indicators are measured, and if they seriously deviate from the planned ones and not for the better, then further activities are analyzed and adjusted. Since all indicators are “dictated” by the real process, and not invented independently, such planning will contribute to the achievement of the necessary goals of the organization.

How to motivate staff to achieve KPIs

Thanks to the use of the KPI system, when paying wages, planned and actual indicators are recorded. This gives the manager a clear understanding of how to motivate an employee and for what. At the same time, the employee also clearly sees the pros and cons of his work and is aware of what actions can bring him reward and what penalties are due.

For example, an insurance consultant sold more insurance policies than planned and expanded his client base with many new clients. Thus, he exceeded the plan and, in addition to his salary, will receive a bonus in the form of a bonus. On the other hand, if the same manager sold much less policies than planned, he may completely lose his bonus and receive a “bare” salary, because his personal performance will be low.

However, you can motivate employees not only with money.

For meeting targets, you can be rewarded with interesting training paid for by the company, unscheduled days off, gifts and other “carrots” that will inspire the employee just as much as money. But in this case, the employee’s salary is always fixed, and according to the KPI system, points are calculated that the employee can exchange for the desired bonuses.

To create KPIs for employees, you need to focus on a common goal for all employees and strong motivation. Working in a team of interested specialists, like clockwork, can quickly lead a company to achieve all its goals.

In what cases is KPI not needed?

In a young company that has just begun its existence, it is not advisable to introduce a KPI system. The management system here has not yet been formed, and successful development is due to the work of the general director. Most often, he also performs the functions of finance and personnel specialists.

And also, you should not implement KPIs in those departments that, because of this, may negatively affect other departments of the company. For example, an IT service, whose representatives must solve the problems assigned to them (repair of office equipment) as quickly as possible. After all, it happens that one of the employees’ computer breaks down and work stops, and the entire department depends on the work of this employee.

If the salary of an IT specialist is calculated according to the KPI system, then he will not go to work right away. First, you need to submit a request to fix the breakdown. This application must be approved by a senior IT department specialist, after which the task is queued for implementation and awaits consideration.

As a result, a task that requires 5 minutes to complete takes much more time, during which time the work of the entire department, where one computer has broken down, does not move at all.

That is why it is useful to implement a KPI system wisely, otherwise it can do a lot of harm.

Errors when implementing KPIs

The most common mistake is introducing KPIs for statistics alone.

Ultimately, it turns out that the indicators of one division have no connection with the indicators of another.

For example, the supply department of one enterprise needed to reduce costs. Therefore, in order to receive raw materials at a discount, employees purchased them in large volumes, and also purchased defective goods. This led to overcrowding of warehouses, freezing of finances in raw materials, which blocked all the advantages.

Meanwhile, the production department had its own priority indicator - the load factor of production equipment. To use time efficiently, employees produced certain products in large quantities to save valuable minutes on machine conversions. But this inevitably affected the fulfillment of the sales plan by the commercial department, because there was no necessary assortment, and at a specific period of time the client could only purchase one type of product.

As a result, a situation has arisen where everyone pulls the blanket on themselves, and no one achieves the goal. The result was reduced to zero, and all the work was done in vain.

Another common mistake is focusing exclusively on material indicators that are the result: sales level, income, etc. However, only when key indicators are not financial, but proactive, can goals be achieved much more effectively.

For example, how many calls should a sales manager make, how many meetings should he hold, how many contracts should he conclude in order to achieve that same resulting KPI? It is on the basis of such non-financial factors that the employee motivation system should be built, and department heads should focus directly on financial factors.

And also a serious mistake would be a situation where the persons responsible for a particular indicator are not identified. For example, the incentive procedure does not imply bonus payments or their reduction by the manager for fulfillment or non-fulfillment of the plan. In this case, the boss cannot be responsible for the actions of his subordinates, because he has no opportunity to influence them.

Pros and cons of implementing a KPI system

Working according to the KPI system has many advantages:

• It has been established that in companies with such a system, employees work 20-30% more efficiently.
• Specialists will clearly understand which tasks are priority and how to complete them.
• With a well-implemented system of indicators, monitoring the company’s activities is greatly facilitated, thanks to which problems are detected already at the stage of their occurrence and are resolved before they can cause harm.
• When calculating wages, the principle of fairness applies: those who worked diligently receive more. This allows the organization to retain valuable talent.
• The wage fund becomes a means of motivating staff, and not the main source of expenses.

The KPI system also has disadvantages. First of all, the disadvantage is that a lot of time and effort is spent on implementation, because all indicators need to be worked out in detail. Most likely, it will be necessary to retrain employees, explain to them information about changing working conditions and new tasks.

However, the main disadvantage is that the effectiveness is not always assessed correctly. This can be avoided if, at the stage of system development, the criteria by which the assessment will be carried out are perfectly formed.