Definition of Key Performance Indicator (KPI)

A KPI is a great tool to measure and control the performance of any given process. In management jargon, there is a famous saying which says “That which cannot be measured cannot be managed”. The whole process of control, therefore relies on real time measurement and transfer of information from the site where the task is actually being performed to the control room i.e. the management.

Definition of KPI: The KPI can therefore be thought of as a measurement that tells that management the precise state of operations at any given point of time.

There are 4 components to any KPI.

  1. What is being measured ?
  2. Who is measuring it ?
  3. At What Interval is it Being Measured ?
  4. How frequently is the Information being transmitted to the Control Room ?

It is important that these 4 parameters are carefully defined keeping in mind the operational and technical capabilities. Measuring the wrong KPI or measuring the right KPI in the wrong manner can cause more harm than good to the organization that is measuring it.

The Relationship between KPI and SLA

While a KPI is a measure of performance, the Service Level Agreement or SLA is the ideal state of those measurements. For instance our body temperature is a KPI for our health, while 98.3 degrees Fahrenheit is the SLA i.e. the ideal state of affairs.

Hence, if we were to control our health, we would create a mechanism in which our temperature is being automatically measured. When the KPI deviates from the desired SLA i.e. temperature deviates from 98.3 degrees Fahrenheit, it must send some sort of a message to the management that management interference is required.

The beauty of KPI’s and SLA’s is that it provides required solutions in required time. Hence management can take preventive action instead of having to cure the problems.

Algedonics: While BPM solutions have built in functionalities to report any and every deviation from the SLA, it would not be in the best interest of the management. It is impossible for any process to function at uniform speed, if it is being performed by humans. Even mechanised processes do not function at absolutely uniform speed. Some level of tolerance, therefore needs to be built in the control mechanism.

The KPI’s and SLA’s should therefore allow for +/- 10% changes. Anything which goes above this is serious enough to require management attention.

The 10% is a ballpark figure and may be different depending on the degree of automation and criticality of the process. But the idea is clear, some tolerance level needs to be built in this system or else the managements mailboxes will be flooded with deviation messages which do not even represent an operational problem.

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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to and the content page url.