Unravel KRA’s, KRI’s, PI’s and KPI’s
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 scorecards.
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. Additionally, a scorecard is driven by a management methodology, such as a balanced scorecard. They are a direct indicator of how well the corporate strategy is being executed.
Quick Metrics Definitions
KRI – key result indicators indicate what you have done in key result areas [KRA’s]. These are broad result areas where the overall performance metric, KRI, is the result of many actions.
IP – Performance indicators tell you what to do. These are more focused on smaller target areas than KRIs, but less powerful than KPIs.
KPIs – 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.
KRI
KRIs are indicators of how well the organization is being governed, and are used by the board to measure the effectiveness of overall management decisions. For an effective KRI panel, you won’t have more than 10-12 measurements.
KRIs include:
- 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 contribute to a number of contributing factors. When a focused financial measure directly relates to a strategic imperative with a financial outcome, 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 may include measures such as:
- Profitability of the top 10% of customers
- Net profit of a particular product group
- Percentage increase in sales in a particular region
- Percentage of employee participation in the training plan
KPIs
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 effecting a significant improvement in performance.
KPIs are the result of an action that directly contributes to a strategic objective and 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 typically include a mix of PIs and KPIs and may include 18-20 measures. Remember that the difference between a dashboard and a scorecard is that a scorecard has a methodology attached to it.
There is no ideal list of KPIs for all companies, or even for all companies within an industry. The reason for this is that two competing companies may have totally different strategic imperatives. A strategic imperative is that overarching strategic objective that all other strategic objectives serve. It is the dominant focus of the company.
Thus, two manufacturers may have similar IP and strategic objectives, but one manufacturer may be focusing 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 including:
- They are forward-looking in the sense that they have a significant impact on meeting a strategic objective.
- They are linked to the responsibilities of teams and individuals.
- Typically impact all other performance measures and more than one BSC perspective
- they are not 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 to the individuals through the organization. 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, if there are indications that deadlines are being missed, immediate steps will be taken to add more staff, improve productivity, resolve any supply issues, and identify and correct any other contributing factors. This metric will have an impact on other metrics such as customer retention rates, order values, customer satisfaction, production capacity and process efficiency, etc.
