How to write KPIs

The five parts of a well-written KPI

Write every KPI as a small specification. If any of the five parts below is missing, the KPI will be argued about at review time, usually because the employee and the manager used different data or different definitions. Five lines per KPI is enough.

• Name: short and specific, such as pick accuracy
• Formula: what is counted, divided by what, times 100 if it is a percentage
• Data source: the system, report or register the numbers come from, and who pulls them
• Target and minimum: for example, target 98 percent, minimum acceptable 95 percent
• Frequency: monthly, quarterly or per project, and when the number is reviewed

Worked examples

Collection efficiency for a collection executive at an NBFC branch in Nashik: amount collected in the month divided by amount due in the month, times 100, taken from the loan system's collection report, target 96 percent, reviewed monthly. In March, ₹48,00,000 was due and ₹46,32,000 was collected, which gives 96.5 percent. Pick accuracy for a warehouse picker: orders picked without error divided by total orders picked, times 100. Of 2,000 orders, 1,960 were error-free, so pick accuracy is 98 percent.

First response for a support agent: tickets answered within four working hours divided by total tickets, times 100, from the ticket system, target 90 percent, reviewed weekly. If an agent handled 250 tickets and answered 230 within four hours, the KPI is 92 percent. Each example can be recalculated by anyone with access to the same report, which is the test every KPI should pass.

Leading and lagging KPIs

Lagging KPIs measure results after the fact: revenue booked, defects shipped, attrition. Leading KPIs measure the activities that predict those results: qualified sales meetings, preventive maintenance completed, stay interviews held. A B2B sales executive in Pune might carry monthly bookings as a lagging KPI and qualified meetings per week as a leading one. Leading KPIs help managers coach during the month, instead of discovering a miss when it is too late to fix.

Traps that turn KPIs into box-ticking

A KPI changes behaviour, sometimes in ways nobody intended. Before finalizing a KPI, ask how someone could hit the number while hurting the business, and add a second KPI that closes the gap. A support team measured only on handling time, for instance, soon learns to end calls early.

• KPIs the employee cannot influence, such as company share price
• Measuring what is easy to count instead of what matters
• More than six to eight KPIs for one person
• Targets set without looking at past data
• A single speed KPI, such as call handling time, with no quality KPI beside it
• KPIs with no agreed data source

Step by step

1. Start from the KRA. Pick the result area the KPI will measure, such as collections or pick accuracy. Every KPI should belong to one KRA.
2. Name what you will count. Decide the unit: rupees collected, orders, tickets, hours of downtime. Be exact about what counts and what does not, such as excluding cancelled orders.
3. Write the formula. Write the numerator and denominator in words, and whether the result is a percentage, a count, an average or a time.
4. Name the data source and owner. State which system or register supplies the numbers and who pulls them each month, so the figure is not rebuilt differently by each person.
5. Set a baseline, then a target. Calculate the KPI for the last three to six months first. Set the target as a realistic improvement on that baseline, with a minimum acceptable level.
6. Decide the frequency. Match frequency to how fast the number moves: weekly for support response times, monthly for sales, quarterly for attrition.
7. Test it on last month's data. Ask two people to calculate the KPI separately from the same data. If they get different numbers, tighten the definition.
8. Record it with a weight. In ZeniaHR, add the KPI as a goal of type KPI with its weight in the employee's review cycle, so the measures and weights are agreed and on record.

Frequently asked questions