KPIs: How many do you need? by F Graziosi
First of all a personal consideration. I do not like very much the K letter in KPI acronym. K stands for key, meaning “important” in this case. I think that just PI would be better: at least if a performance indicator is not important why would you need it anyway? The same way there are no “key objectives”, an objective is either important it isn’t an objective at all.
So why am I talking in KPIs and not simply “PIs”? Because KPI has become a common buzzword that everybody uses and understand! I shall speak what everybody understand and … search!
Now let’s suppose I ask you this singular question: “How much gasoline do I need?”, you would surely respond “…to go where?”.
Simply stated you need gas to have your car running. There is no such think as 5 gallons are better than 10. What is really important is deciding if you actually shall go somewhere or not. Once you decide to go you shall provide gas for that.
The same way there is no exact number of KPIs. You either decide that need them or not. What really matters is finding right KPIs.
One thing is sure: you can’t simply go “fishing” for KPIs in books or Net repositories. You can inspire and take ideas from those valuable resources, but you shall decide your KPIs based on your own strategy (in a future post I will explore how to use Mind-maps in this process).
Finally a third consideration is how many KPIs can a person reasonably manage? And this is probably the real sense of this over-asked question.
The famous paper “The Magical Number Seven, Plus or Minus Two” has inspired different theories from management (best number of manager subordinates) to software engineering (number of called modules). I think it also applies very well to how many KPIs a single person can manage.
I have seen in practice numbers between 5 (7-2) and 9 (7+2) work very well. I know that most people would prefer a smaller number and, just one would be optimal (at least our final goal is cash flow!) but in practice it is hard to stay under 5. Let’s see why through a practical case.
As usual I am going to use a marketing case, because it is understandable to a larger audience. To assess promotional activities we need at least three KPIs:
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Cost per lead (minimize): How much we spend to create a new lead (interested possible buyer)?
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Qualification rate (maximize): how many of generated leads are actual prospects (possible buyers)?
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Leads per Rep (reach expected throughput): since we shall provide a constant flow of new opportunities to sales reps.
As you can see the three KPIs are not always independent each other but competing: it is easy to reach a good throughput spending a lot per lead or acting as gun machine (lot of poor leads that will not be qualified as prospects).
Using a set of competing KPIs is very important: managing is the art of getting good results under multiple constraints and competing KPIs assure that we do not compromise any aspect.
So 3 KPIs are already there and they are all lag KPIs: they reflect past situation. What is our promotional department doing about brand image? And about social media and press? We also need leading KPIs to assess if tomorrow will be as good as yesterday (more in lag/lead KPIs on next post)
Adding 2-3 KIPs will bring us to 5-6 KPIs, now inside the magic 5 plus or minus 2 range!
What if we exceed 9 KPIs for one person? Probably that person is directly managing a too large process: you shall divide and conquer! If your organization in a 30-people organization, you usually do not have a single boss, but two management levels. The same applies to KPIs.
As you see a better restatement of question would be “How shall I distribute my KPIs to manage them?”
http://www.cbsolution.net/roller/ontarget/entry/kpis_how_many_do_you
