Understanding KPI: What You Need to Know Before Starting a Job

You've probably heard a lot about KPIs and how many companies use them, but do you really understand what KPI is all about? What does it mean to run KPI? If you want to delve deeper into what KPI is, its benefits, the standard KPI development process, KPI classification, and what applications support KPI development, then join us at Mytour to explore what running KPI means and what you need to know about KPI before entering the workforce in this article.

1. What is KPI?

KPI stands for Key Performance Indicator, which is a metric used to evaluate the performance of a department within a company or the overall operation of the company itself. KPIs allow business owners to have an overview of the operational efficiency of each department, each employee, and the company as a whole at any given time.

Example: KPI on sales growth.

Sales growth helps businesses measure whether revenue from sales is increasing or decreasing. Monitoring this metric closely at certain intervals helps understand the growth trends and the value of the business. If the target is to achieve a sales growth of 20%, but the actual result is 32.7%, a good KPI indicator is when the percentage of sales growth exceeds the target at the specified time.

KPI is not only a criterion for evaluating the effectiveness of an individual's, department's, or organization's job performance, but it is also a tool for comparing achievements with other individuals, departments, or organizations. To date, KPI remains a widely used metric in businesses.

2. What is Running KPI?

If you understand what KPI is, then you will easily grasp what running KPI is. Running KPI can be understood as a person carrying out a project, striving to complete all tasks to achieve the KPI set by their superiors.

3. Things to Know About KPI Before Starting Work

3.1 What are the Benefits of KPIs?

For businesses and leaders

• Business leaders can accurately assess employees' work capabilities in a visual, transparent, and precise manner, as well as establish appropriate reward and disciplinary systems
• Enhance the efficiency of job implementation evaluation processes
• Ensure that goals and visions can be achieved as expected
• Devise business strategies for the enterprise

For employees

• Understand how their work impacts the organization's progress in achieving set objectives
• Identify shortcomings if tasks are behind schedule to make timely improvements
• Create work motivation for employees, fostering a greater sense of responsibility towards achieving goals
• Identify opportunities for improving efficiency, fostering collaboration among employees to achieve common goals

3.2 Classifying KPIs

There are various ways to classify KPIs, and many types of KPIs are used in businesses. You should choose the most suitable type of KPI for your business strategy. Below are common types of KPIs classified according to different roles within a company:

• Business KPIs

Business KPIs help companies measure the effectiveness of their business operations. Based on these KPIs, businesses can determine the effectiveness of projects and identify weaknesses to address in their business processes.

• Financial KPIs

Financial KPIs are used by financial management and leaders of the finance department to monitor and measure the financial situation of the company. KPI indicators may include profit, revenue, and more.

• Marketing KPIs

Marketing KPI indicators help the company's marketing team measure the effectiveness of advertising campaigns, marketing efforts, marketing channels, etc. Based on the set goals, the Marketing team will assess whether the campaign has been effective, evaluate the level of effectiveness, and determine what needs improvement. They also identify what to eliminate to focus on the most effective channels.

• Sales KPIs

Sales KPI is applied in companies and businesses across various sectors, from retail to any product or service sold. Sales KPI is used to measure the effectiveness of the sales department's contribution to revenue monitoring and evaluation processes.

• Project Management KPI

Project Management KPIs are used by managers to monitor the progress and effectiveness of each project. Managers can easily grasp the effectiveness of each phase of the project, employee performance, and the level of efficiency compared to the initial objectives set.

3.4 Common Mistakes in KPI Development

• Unclear KPI definition: Assuming running KPI without clearly defining specific figures or strategies leads to failure. KPIs must be easily identifiable, properly communicated to relevant departments. This way, the overall situation can be better understood for adjustments and more reasonable KPI metrics can be set.
• Unrealistic, unattainable KPIs: The goal of KPIs for individuals and businesses is to achieve short-term objectives. Therefore, it is necessary to determine the feasibility of KPIs to ensure that employees or departments always perform their best.
• Lack of specificity: A non-specific KPI across job categories makes it difficult to track detailed measurement figures over time. Thus, it's essential to establish specific, detailed KPIs for accurate progress tracking and work efficiency evaluation.
• KPIs not linked to the company's strategic goals: KPIs should be built and monitored based on the strategic objectives of the department. If KPI development and evaluation are not aligned with specific company goals, it will not yield the desired results from the initial objectives set.

• Focusing only on outcome-based KPIs while neglecting leading KPIs: If KPIs only provide final outcome evaluations without outlining the process to achieve results, KPIs will become vague and difficult to achieve. Therefore, there should be a close relationship between process-oriented and outcome-based KPIs.
• Establishing fixed KPIs without updating and customizing over time: If KPIs remain fixed even after achieving set goals, it will waste human resources, and the company's goals will stagnate. Customizing KPIs to fit the company's actual situation ensures stronger development. During difficult times, KPIs may need adjustment to enable employees and departments to achieve desired results.
• Lack of responsibility in the implementation process: Good KPIs but lack of responsibility during implementation will also not achieve good results. Each KPI must have someone responsible for closely monitoring the implementation process. Encouraging rewards and recognizing KPI achievements also motivates individuals and departments to strive for the highest efficiency and improve work quality.

Establishing a KPI system in the company

Step 1: Identify who is responsible for defining KPIs.

Approach 1: Departments take the initiative to build the KPI system

Directly responsible for constructing the KPI system are department heads, who develop KPIs for positions within their department. The larger the department, the more the department head divides the task of creating KPIs among lower-level positions.

Approach 2: Senior management establishes KPIs and cascades them down

The human resources department and senior management directly create KPIs for each department to ensure objectivity and scientific accuracy. However, as senior management, they may not have a clear understanding of the situation, and the KPIs they set may not be realistic or accurately reflect the functions and responsibilities of each department. Therefore, after the KPI system is established, it needs to be reviewed and evaluated by the functional department to address these issues.

Step 2: Determine the KPIs

Each position within a department has its own functions and responsibilities, so when building KPIs, the most important factor is to ensure that they are closely aligned with the specific objectives of each department, company.

Once you have identified KPIs with the goals of each employee, position, department, you need to apply SMART criteria to evaluate each task performance indicator. The SMART criteria used to evaluate each task performance indicator are as follows:

• S – Specific: Specific objectives
• M – Measurable: Objectives that can be measured
• A – Attainable: Achievable objectives
• R – Relevant: Realistic objectives
• T – Timebound: Objectives with specific deadlines

If the KPIs you build do not meet the SMART criteria, it will adversely affect job performance evaluation, and even have negative consequences for the organizational management system of the enterprise, company.

Note that the performance indicators chosen as KPIs will vary depending on the type of business, specific activities of employees, and overall departmental KPIs. For example, KPIs may be used to measure areas such as: sales units, product quality, profit, customer service, employee revenue, etc.

Step 3: Evaluate the completion of KPIs

After the KPI creator has identified the KPIs for each job position in the enterprise, the next step is to apply them to management, including both personnel and productivity. The KPIs have been determined based on measurable criteria, so there are specific evaluation methods for each KPI item. KPIs are generally divided into 3 main groups:

Group 1. Group consuming a lot of time to execute, impacting heavily on the overall goal.

Group 2. Group requiring little time to execute, impacting heavily on the overall goal, and requiring much time to execute, impacting less on the overall goal.

Group 3. Group requiring little time and having little impact.

Each of these groups will have different weights, depending on their importance. For example: A: 50%; B: 30% and C: 20%. To evaluate the completion level of an employee A, it will include all 3 KPI factors: A, B, and C.

Each group will have a different weight depending on the importance of that group, for example: Group 1: 50%; Group 2: 30%, Group 3: 20%. To evaluate the completion level of an employee A, it will include all 3 groups: Group 1, Group 2, and Group 3.

Step 4: Linking KPI evaluation with rewards and incentives

Based on the completion level of KPIs, the system's KPI creator will determine a certain level of rewards and incentives for each individual. The reward and incentive policy based on this KPI completion level can be predetermined by senior leadership, managers, KPI creators, or can be self-negotiated by employees depending on the situation.

To evaluate in the most objective and comprehensive way possible, it's necessary to combine the opinions of both leadership, customers, and the employees themselves during the periodic performance evaluation sessions.

Step 5: Adjusting and optimizing KPIs

The KPI system must be monitored and adjusted over time to closely align with the reality and goals of the business. It takes several initial months to reach optimal levels. Once the best and most optimal KPIs are established, they should be maintained for at least a year.

4. Free tools to support effective KPI building

4.1 Scoro Software

Scoro software is one of the free tools supporting KPI building for online project management, bringing many benefits to businesses. The system offers numerous features from controlling business activities, building KPIs to planning, and reporting directly on the software. Using Scoro is also very simple with its smart dashboard format, easy to navigate.

4.2 Acheckin Software

Acheckin is a smartphone application designed for newly established businesses, helping to increase productivity in business operations. It can be installed on both Android and iOS operating systems. Acheckin provides many features such as QR code attendance, task management, reminder functions, and objective KPI evaluation for employees. Users can flexibly adjust it to fit the projects of the business.

4.3 Tanca Software

Tanca, the free KPI evaluation software, operates on a subscription basis. Tanca software meets the KPI management needs for businesses and is currently a trend among time attendance system distributors. It offers many features such as work performance measurement, linking KPIs with salary coefficients, etc. Using Tanca, businesses can save time collecting data for managers. Moreover, you can use Tanca offline without losing data.

4.4 SimpleKPI Software

The next free software supporting effective and easy KPI building is SimpleKPI. SimpleKPI software provides many outstanding features for users similar to Scoro, making it easy for users to manage and customize KPI reports suitable for the business. SimpleKPI software automatically provides KPI analysis tables and reports with easy-to-follow maps.

4.5 HrOnline Human Resource Management Software

HROnline software, provided by SoftOne, is a free human resource management software. HROnline helps businesses control various areas of operations, monitor projects in the simplest and easiest way, and build human resource management KPIs. Company data is automatically saved and updated using cloud computing technology, saving time. With HROnline, managers can efficiently track and optimize work schedules for employees and departments.

So, you've explored what KPI is and what running KPI means with Mytour. You've learned about KPIs before starting work, free software to build KPIs for businesses, managers, and corporate leaders. Hopefully, after reading this article, you'll have a better understanding of KPIs and the basic information you need to know before joining a company. Thank you for your interest and for following along.