There is often a lot of confusion around the definition and use of the various metrics: KRA’s, KRI’s, PI’s and KPIs. In this article I will attempt to clarify the difference between each and how they are applied to dashboards and scorecards.
First, let’s just revisit the difference between a dashboard and a scorecard:
The primary difference between the two is that dashboards monitor the performance of operational processes [events and transactions] whereas scorecards show the progress towards tactical and strategic goals. In addition, a scorecard is driven by a management methodology, such as balanced scorecard. They are a direct indicator of how well the corporate strategy is being executed.
Quick Metric Definintions
KRI – key result indicators tell what you have done in key result areas [KRA’s]. These are broad results areas where the overall performance metric, KRI is the result of many actions.
PI – performance indicators tell you what to do. These are more focused in smaller targeted areas than KRI’s, but less powerful than KPI’s
KPI – key performance indicators tell you what to do the dramatically increase performance. They are the result of one action, and directly linked to a strategic objective.
KRIs are indicators of how well the organization is being governed, and are measured used by the board to measure the effectiveness of overall management decisions. For an effective KRI dashboard will have no more than 10-12 measures.
- Financial measures* such as return on capital employed, NPBIT, EBIT
- Customer measures such as customer satisfaction and customer profitability
- Internal measures such as employee churn, employee satisfaction
These measures are broad, cover long time periods such as quarters or year.
*Generally, all financial measures are KRI’s as they are historical and are contributed to by a number of contributing factors. Where a focused financial measure directly relates to a strategic imperative with a financial outcome, then in some cases a financial metric may also be a KPI for a defined period.
These are metrics that represent the performance in one 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 the overall strategic execution. For instance, PI’s may include measures such as:
- Profitability of the top 10% of customers
- Net profit on a particular product group
- Percentage increase in sales in a particular region
- Percentage participation of employees in training scheme
KPIs are direct indicators of management decisions at a strategic level; that is they are the most critical metrics of the company in terms of effecting a major improvement in performance.
KPIs are the result of one action that directly contributes to a strategic objective and are measured over very short time periods: hours, days, weeks and months.
An effective KPI dashboard may have more measures than a KRI dashboard, but never more than 18-12. The selection of measures will be determined by the purpose of the dashboard. For instance, a department dashboard may have only 8 KPI’s, where as a department balanced scorecard will generally include a mix of PI’s and KPI’s and may include 18-20 measures. Remember that the different between a dashboard and a scorecard is that a scorecard has a methodology attached to it.
There is no ideal list of KPI’s for all companies, or even 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 one overriding strategic objective to which all other strategic objectives are serving. It is the dominant focus of the company.
Thus, two manufacturers may have similar strategic objectives and PI’s, but one manufacturer may be focusing on expansion to gain a dominant foothold in an emerging market and see this as the most critical goal 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, KPI’s do share common characteristics including:
- They are forward facing in that they have significant impact on fulfilling a strategic objective
- They are linked to responsibilities of teams and individuals
- They generally impact all other performance measures and more than one BSC perspective
- They are non-financial
- They have short measurement cycles and must be constantly monitored
Thus, these measures have a direct link from the strategy set by the senior executive team all the way down through the organization to individuals. It is imperative that the importance and impact of these measures are well understood by all, and the corrective action required if the performance is not reaching targets.
For instance, if meeting manufacturing deadlines is a KPI that contributes to the strategic imperative, then if there are indications that deadlines are being missed, immediate action will be taken to bring in more staff, improve throughput productivity, resolve any supply issues, and identify and correct any other contributing factors. This one metric will impact other measures such as customer retention rates, order values, customer satisfaction, production capacity and process efficiency etc