We all know the importance of KPIs in today's world of growing business data. KPIs assist in measuring and managing your progress towards your business goals. However, there is inconsistency amongst managers around the definition of the term 'KPIs'. In my interactions with several managers at mid-to-large sized corporations, I see that KPIs and Metrics are often confused with each other, and their meaning is not aligned across different managers at the organization. In this blog, I will attempt to explain the difference.
The dictionary meaning of Metrics is - "a standard for measuring or evaluating something, especially one that uses figures or statistics". In other words, a Metric is basically a way to measure something, for example, Volumes in our case would be a metric. But do Volumes alone tell us how we are doing? If we moved 100M BPD of Gasoline in the Gulf Coast region this month, was that good or bad? Some people are well versed with their businesses, so it's intuitive for them to understand whether 100M BPD were good or bad. But then we know that in today's data-driven world, we can't just rely on intuition. Can we?
Key Performance Indicators (KPIs) on the other hand utilize Metrics and get you answers to the question of whether we're on or off track. KPIs use Metrics and compare them to various benchmarks of your choice. For example if our Plan was to do 110M BPD this month, then the KPI in this case is Actual vs Plan BPD, telling us in turn that we didn't do very well and came in 9.1% below Plan. A KPI will check our Metric towards a benchmark and hence measure effectiveness, whereas a Metric is merely a number.
KPI Design is an integral part of Business Analytics as it identifies and defines the right KPIs to measure and manage your business performance.
The dictionary meaning of Metrics is - "a standard for measuring or evaluating something, especially one that uses figures or statistics". In other words, a Metric is basically a way to measure something, for example, Volumes in our case would be a metric. But do Volumes alone tell us how we are doing? If we moved 100M BPD of Gasoline in the Gulf Coast region this month, was that good or bad? Some people are well versed with their businesses, so it's intuitive for them to understand whether 100M BPD were good or bad. But then we know that in today's data-driven world, we can't just rely on intuition. Can we?
Key Performance Indicators (KPIs) on the other hand utilize Metrics and get you answers to the question of whether we're on or off track. KPIs use Metrics and compare them to various benchmarks of your choice. For example if our Plan was to do 110M BPD this month, then the KPI in this case is Actual vs Plan BPD, telling us in turn that we didn't do very well and came in 9.1% below Plan. A KPI will check our Metric towards a benchmark and hence measure effectiveness, whereas a Metric is merely a number.
KPI Design is an integral part of Business Analytics as it identifies and defines the right KPIs to measure and manage your business performance.
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