A Key Performance Indicator (KPI) is a metric used to evaluate the performance and effectiveness of an individual, team, or organization in achieving specific objectives or goals. KPIs vary depending on the area being measured, such as customer satisfaction, revenue growth, or process efficiency. For instance, in finance, common KPIs might include the Quick Ratio or the Budget Variance. By tracking KPIs, organizations can make informed decisions, identify areas for improvement, and align efforts towards strategic objectives.
To illustrate, a business might choose percentage revenue growth as a KPI to measure its annual financial performance. Another example is tracking Net Promoter Score (NPS) to assess customer satisfaction. KPIs can be either lagging indicators, which measure past performance, or leading indicators, which predict future outcomes. Effective KPIs are specific, measurable, achievable, relevant, and time-bound (SMART).