Objectives

#1 Differentiate between Data, Metrics and KPIs

#2 Learn how a KPI evolves from a metric

#2 Understand why a KPI requires a goal and a target to become a KPI

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Workbook with Slides

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Video Transcript:

We all know that there is an explosion of data. Data is pretty useless unless we transform it into metrics things that we measure, and metrics eventually evolve into KPIs. But where does the data come from? It doesn't just exist. It actually comes from people and computers who work in business

processes and produce clean reliable data, which is stored in a computer or a digital platform and that's what we call data. In the digital age, data is also produced from devices. These devices create their own data sometimes, stored in a computer. And lastly, data can be actually created by pen and paper. This is the old-fashioned way. We know that pen and paper create data which obviously is useful if it is stored in a computer. But what if your data turns out to be dirty? In the old days, we fixed that in our spreadsheets. But these days, there is too much data to fix it in a spreadsheet before reporting. The only true way to fix dirty data is to fix the underlying process that produces that data.

What is a metric? A Metric is anything we can measure, such as Length, Weight or Height or Humidity. It can even be Temperature. It can be Altitude or speed, the value of cash, the number of widgets. These are all metrics, but none of these are examples of KPIs… just yet. Metrics have to evolve into KPIs. So Finally, what is a KPI or key performance Indicator? We know that data evolves into metrics but now metrics have to evolve into KPIs.

Let's have a look at Jerry over here, he has a metric called weight. The current state of his weight is 110 kilograms. But Jerry remembers the day when he was 75kgs x 20 years ago, when he was young, fit and healthy and didn't look as big as he does today. And so he has set himself a goal. The goal is to lose weight by the summer. The targeted is 75 kilograms, which is what Jerry used to weigh. So we have a goal and we have a target. Now we have a KPI, the “# of kilograms lost” is what Jerry used will use to weigh his progress.

A KPI is a measure of performance used to measure Progress towards a target/a goal/ a desired state.

So here are some more examples of KPIs taking into account what we have just learnt.

We have a metric called Value of Cash. The goal could be to improve cash flow. The current state is $ -10M. The target is greater than zero dollars and the Key Performance Indicator will be the number of months with Positive Cash flow.

Next. Number of widgets. The goal is to improve production. The Current state is 1 million units. The target is 1.5 million and so the KPI would be the number of widgets made per day.

Another one. The metric is altitude. The goal is to increase the time cruising the current state is 85 percent target is 87 percent and the KPI is the average time at cruising altitude.

The next metric is Length. The goal is to master my Driver (golf). The current state is 250 meters and the target is 275 meters. The Key Performance Indicators will be the tee-off distance of the driver.

And finally, the metric expenses. The goal could be to Improve Profitability. The current state is 72 percent and the target is 68 percent. The Key Performance Indicator is % Cost to revenue ratio.

So, to recap the metric, plus a goal or desired state, plus a target would give us the ingredients to make up a Key Performance Indicator.

The KPI is always a number. It must fit into one cell.

It's not a list of values. Nor is a KPI a report. The total of a list can be a KPI.

A KPI is always a percentage, a number or a value.

A sentence or a list of words cannot be a KPI.

Conclusion

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