Tuesday, May 21st, 2013
NEW: As of 05/21/2015 we have an updated version of this blog. Come check it out here!
Understanding how your business operates is the very root of success; being familiar with your data, and how to properly utilize different types of data, will help you in doing just that.
Now, you may have herd of KPIs and quite possibly, KRIs, if you’re familiar with the BI space. They are widely regarded as the most important types of data to track for company-wide success.
But how much do you really know about them; what are KPIs and KRIs, exactly? And how can they help your business?
The Key Difference
KPIs. or Key Performance Indicators, measure the actions and events that lead to a result. and are considered to be critical to the success of your business as their data is crucial in creating strategies and aligning goals.
On the other end of the metric spectrum is the KRI. or Key Result Indicator. A KRI measures the results from your business actions, which are critical in tracking progress and defining success.
KRIs exist to tell management and shareholders if the organization is operating well, but what they don’t know, and mistakenly use KRIs for, is provide any insight or direction into what actions are successful and which are not.
This is where KPIs come in.
While KRIs are important in determining if end goals have been met, they cannot help you achieve or improve upon these goals; they are simply benchmarks (which are still crucial to a company’s definition of success). KPIs, while not as flashy, focus on the actions that lead to the results; it’s this information that’s critical in creating strategies and aligning goals, which can further or hinder a company’s success.
How to Tell Them Apart
In short: KRIs define success, while KPIs dissect and measure it.
Now, the long version.
There are several techniques you can use to identify your organization’s KPIs
and KRIs. Most executive or shareholder reports are full of RIs (Result Indicators) and KRIs – including profitability, market share, new contracts, renewal rates, etc. These metrics define success.
Whether a metric is an RI or a KRI depends on the priorities of each business, with KRIs being the most important indicators of an organization’s overall health.
KPIs are a bit harder to identify, and typically require more effort (for more information on how to identify and select your KPIs, click here ). One approach is to list out the critical success factors (CSFs) for your business, and identify which of those CSFs have the most influence. For example, a shipping company might list customer satisfaction, warehousing costs, and on-time delivery as critical success factors; since on-time delivery increases customer satisfaction and lowers warehousing costs, this CSF is considered to be strongly influential, a.k.a. a KPI. KPIs are the metrics used to measure the performance of these most influential CSFs; they are the metrics that dissect success .
One More Time…
An easier way to look at KPIs and KRIs, would be to think of your business as a sports team. The general manager is interested in the overall wins and trophies that a team has amassed (KRIs), similar to the board and owners of a company. The coach, however, is more interested in how the players are performing and the advanced statistics that show them where the team can improve (KPIs), similar to management in a company. In this scenario, the general manager/owner is concerned with KRIs, while the coach/management is more occupied with KPIs. Both sets of metrics have incredible purpose towards the success of the team, but the two are used and looked at in two entirely different ways.