KPIs and KRAs - Measuring & Managing Performance (2024)

You cannot manage what you do not measure.

An implication of the above subtitle is that you cannot improve your department's or an individual's performance in a specific key result area (KRA) if you do not , or cannot measure and benchmark actual performance in that particular area. To measure performance you need to design and apply appropriate key performance indicators (KPIs). A KPI is a measure of performance linked to a particular key result area or simply, KRA. Therefore KRAs and KPIs go hand in hand. Examples of KRAs include recruitment, training, compensation, manufacturing, sales, customer service, quality, profitability, productivity, employee engagement etc. How can you manage (improve) these result areas if you do not measure present performance in these areas?!!!4

The best way to understand the difference and relationship between KRAs and KPIs is by considering what happens to you at the doctor's clinic. In this case the KRA is your health that you want to improve. To start with, the doctor or his nurse will measure those vital signs like blood pressure and body temperature in order to find out how you are doing. Don't be surprised, blood pressure and body temperature are KPIs for your health. Simple, isn't it?

Tasks vs. KPIs

Many people confuse a KPI with a task. For example 'going three times to the gym per week'. Is this a KPI or a task? Going to the gym three times per week is a process or a task. Where is the result? There is none, so far at least. Another example of a task is 'conduct twenty job interviews per week'. Where is the result? The latter is not to conduct so many interviews. The result is to fill a vacancy as quickly as possible and with the right person. Conducting interviews is the process or the task that leads to achieving a desired result. Similarly, going to the gym three times a week is not a result. Loosing five kilos by the end of the month is the result.

So what is a KPI? As stated earlier, it is simply a measure of performance linked to a particular result area. Each of the functions of HR for example is a key result area. HR people have to achieve results in recruitment, training, development, compensation and benefits, employee relations, succession planning, employee satisfaction, employee relations, employee morale etc. If you take recruitment as an example of an HR KRA, the number of job interviews conducted per period of time is not a KPI for sure because it does not reflect a result in that area. Examples of appropriate KPIs linked to recruitment would be:

1. Average time to fill a vacancy. The less the time, the better.
2. Average cost per new hire. The less the cost, the better.
3. Qualified applicant ratio. The higher the ratio, the better.

Please note that a KPI is a lagged indicator because it measures a result that has already taken place.

Characteristics of SMART KPIs

Not every measure or metric is a KPI by default. Below are the characteristics of result-driven or SMART KPIs:

1. A KPI is a measure of performance linked to a specific result area (KRA).
2. A KPI is a statement without a verb, or a number, or a date. It is just a measure as shown in the above recruitment KPIs. As we shall see later, a KPI can be transformed into a SMART objective.
3. A KPI has to be simple and fat free so that it can be easily understood.
4. A KPI has to have a clear unit of measurement (%, $, days etc.)
5. A KPIs has to have a clear and specific formula to measure it.
6. A KPI can be reported on demand.
7. A KPI must be cost effective to measure, monitor and report.

Turning a KPI into a SMART Objective

Now that you have designed a specific KPI you can use it to set SMART objectives at any organizational level; corporate, departmental or individual. Below is an example of few SMART objectives:

1. Reduce average emergency room patient wait time by 30% by end of quarter 4, 2019. Where is the KPI? It is 'average emergency room patient wait time. What is the KRA related to this SMART objective? It is patient service. The target is the number 30%, and the deadline is end of quarter 4, 2019.
2. Reduce the average time to fill a vacancy from 67 days to 40 days by end of 2019. Where is the KPI? It is 'average time to fill a vacancy'. The KRA to which this SMART objective is related is recruitment with a target of 40 days and a the deadline is end of 2019.
3. Reduce employee turnover rate by 15% by the end of quarter one 2020.
4. Increase average revenue per customer by 25% by end of quarter two 2020.
5. Increase average employee productivity by 10% by end of 2019.

As can be seen from the above examples, a SMART objective has the following general form: Action verb (reduce) + KPI (turnover rate) + Target (15%) + Time (end of quarter one 2020). You can write all your SMART objective in this clear and simple way.

The Process of Continuous Improvement

The process of continuous improvement consists of the following steps:

1. Highlight the KRA that is to be improved.
2. Design a KPI to measure that KRA.
3. Calculate the KPI based on available department data.
4. Benchmark the calculated KPI internally and externally. By internally I mean with a previous company/department result (last quarter or year) and externally by comparing your present result with industry leaders.
5. Set a SMART objective for improvement over the next period (see examples above).
6. Formulate a plan to achieve the SMART objective
7. Implement the plan, monitoring and reviewing continuously.
8. Hold specific people accountable for achieving desired result and reward generously when and if result is achieved or even exceeding the set objective.

In the next article I will differentiate between lagging and leading indicators and show how they could be used.