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What is a Key Performance Indicator?

 , updated on January 13, 2017
A key performance indicator, or KPI, is a business measurement that is designed to focus on strategic goals.
The idea behind KPIs, is that people tend to focus on what you can measure. By carefully designing what you measure you improve your chances of meeting a strategic goal. For example, if a bank has a strategy to better manage risk, a well designed risk measurement can be considered a key performance indicator.
A well designed KPI is typically an easy to understand non-financial indicator that is used to define the goals and incentives of a team or individual. The design of KPI involves an analysis of how it will likely impact the performance of an organization including any downsides the measurement may produce. For example, if you focus on a quality related KPI, costs may go up or production may slow down.
Overview: Key Performance Indicator
Function
Management
Performance Management
Goal Setting
Definition
A quantitative indicator that is designed to measure a goal in a way that motivates employees and provides visibility to management.
Value
Setting performance goals and measuring results.
Related Techniques
Management Accounting

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