Building a system of KPIs is essential for businesses to monitor and evaluate work performance to achieve set goals. But you don’t know where to start? The following article will help you have an overview of the management, create KPIs to help businesses control goals effectively.
1. KPIs in business administration
KPIs or Key Performance Indicators are used to measure job objectives and are evaluated based on data, quantification, percentage of employee’s task completion.
Thanks to KPIs, businesses will know the effectiveness of human resources operating in the organization to reward and warn to improve quality. So what types of KPIs are there?
KPIs clearly defined with two main categories that businesses need to capture:
Strategic KPIs: That is, the board of directors will set big goals for the whole company such as 1-year sales, profit, market share,… For example, KPIs in the next two years must account for 50% of the market share to improve brand value and expand company size.
Tactical KPIs: Used to measure the activities that departments implement to complete the proposed strategy. For example, the Marketing department needs to have campaigns to attract 1000 customers, they will not guarantee sales for the sales team because tactical indicators are used to measure the effectiveness of individual departmental activities, to reach strategic goals.
Indicators are also imposed on different objects such as management levels that will often be associated with strategic KPIs, and tactical indicators will apply to employees.
2. Steps to build effective KPIs
To closely monitor the set goals, leaders and departments need to have standardized and realistic KPIs. Therefore, building a KPIs system will include the following steps:
The person imposing KPIs – Usually, because the department head or human resources department knows the employee’s work items, they will be in charge of setting KPIs. But to be more objective, the human resources department should be responsible for developing a set of KPIs, and the heads of specialized departments will re-evaluate to see the relevance and reality.
KPIs – In this step, we need to specify the most suitable indicators for each department and employee. To make it easier, businesses or specialized departments can apply the SMART model to impose KPIs.
- Specific – Set specific, clear goals
- Measurable – Ensure goals can be measured quickly and effectively
- Attainable – Guarantee the feasibility of the task.
- Relevant – Objectives must be related to the ultimate goal of the business
- Timebound – Specific time to complete the goal
To ensure the efficient application of KPIs, the specialized department needs to consider the current business model and the work of each department. For example, the sales department will be subject to KPIs including agency revenue, customer service, profit, completion time, number of customers repurchased, etc.
Evaluation and measurement – Depending on the importance of each department, the business will focus on measuring efficiency at different levels:
- The main department will be responsible for 50% of the target because it affects the most on the total goal.
- The less important department will have to reach 30% of the target because the time to complete the goal is shorter.
- The support department will be responsible for 20% of the target because their work has little influence on the business goals.
Salary – After assessing the level of work completion, the specialized department must also be clear about the reward level to motivate employees to strive. Boards of directors and heads of departments need to agree on these policies to ensure fairness.
Adjust KPIs on time – Specialized departments and heads of departments must monitor to optimize KPIs promptly because setting KPIs that are beyond reality will be difficult for employees to achieve. Therefore, the components that coordinate to adjust accordingly will bring more performance.
With the above simple steps, the specialized department can easily build KPIs on a small scale. However, if the medium-sized enterprises have about 500 employees or more, they should consider an ERP solution to build a professional, convenient, and optimal KPIs system. And BEMO will help businesses experience the human resource management module at the most competitive cost. Please contact us!