Key performance indicators (KPI) have been increasingly used by many companies and organizations to keep track of the various aspects of organizational performance. One particular application involves bonus KPI, which are the key performance indicators that determine whether or not an individual employee is eligible for a bonus.
Firstly though, what exactly are these so-called key performance indicators? From the term itself alone, these KPI are select measurements that serve to indicate performance levels. To be more precise, key performance indicators are financial and non-financial metrics that are used to both define and measure progress towards organizational goals. By their very nature, these key performance indicators may vary widely across various organizations and disciplines, but there are also several that are applicable for a broad range of organizations.
Key performance indicators form one part of a well-defined measurable objective, which consists of a direction, an indicator, a benchmark, a target, and a time frame. As such, they are vital parts of any strategic management approach, since a concrete idea of what indicators need to be kept track of becomes necessary.
These KPI are not pulled out of thin air by managers. For these indicators to be of any use, they must be based on a pre-defined business process. That is, the organization must be clear about how it operates both internally and externally. Not only that, but the organization must also have set goals and objectives, or at least have some idea of what these aims are. And finally, the organization must be aware and capable of doing the measurements that a key performance indicator would require. These three criteria govern the selection and the efficient implementation of key performance indicators in general, for any organization.
To give a concrete example, consider the selection of a KPI upon which a technical support agent’s bonus is to be based. First, the business process or the set of interrelated tasks that such an agent performs must be determined. This might consist of answering customer queries through various media, doing research work, and creating documentation. Once this has been clarified, the goals and objectives of the organization must be set, for instance efficiency and lower handling or processing times. Lastly, the organization must set in place the different measurement processes that a KPI would require, like timers or loggers.
In light of these considerations, good key performance indicators for a technical agent’s bonus might be successfully answered query percentage, average handling time, or customer satisfaction rate. In this example the flexibility of the KPI approach can be seen. These indicators can be used to measure individual employees’ performance just as effectively, as they are used to measure organizational performance as a whole.
Bonus KPI such as these form just one sample application of the key performance indicator paradigm. Different organizations with different strategic objectives and business processes may employ different types of key performance indicators. The proper selection and monitoring of these KPI will definitely help managers continuously align organizational processes with organizational objectives.