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<h2 style="text-align:justify;">I. What is KPI and their role?</h2><h3 class="indent-1" style="text-align:justify;">1. What is KPI?</h3>KPI stands for Key Performance Indicator, which is a tool to measure and evaluate work performance through data, ratios, quantitative values to reflect the performance of organizations or functions or individuals.<figure class="image"><img src="https://api.estuary.solutions/estuary-web-mediafile/file/fc5de2c7-0244-41f5-aa8e-5069656431fa" alt="KPI is a job evaluation index expressed through data, ratios, and quantitative values."><figcaption>KPI is a job evaluation index expressed through data, ratios, and quantitative values.</figcaption></figure>Organizations and businesses often use KPI at many different levels to evaluate their success with a pre-set goal. High-level KPIs will focus on indicators and common goals of the whole company. In contrast, low-level KPIs are used for individuals and departments to evaluate the performance of specific jobs and processes.<h3 class="indent-1" style="text-align:justify;">2. The role of KPI</h3>For companies:<ul><li style="text-align:justify;">Monitor employee performance intuitively, transparently, accurately</li><li style="text-align:justify;">Propose appropriate salary, reward and discipline regimes</li><li style="text-align:justify;">Improve the efficiency of the acceptance testing</li><li style="text-align:justify;">Ensure goals and visions can be completed as expected</li></ul>For employees:<ul><li style="text-align:justify;">Understand the level of completion of the work compared to the set goals</li><li style="text-align:justify;">Motivate to work towards achieving goals</li><li style="text-align:justify;">Detecting defects if the task is behind schedule for timely improvement</li></ul><h3 class="indent-1" style="text-align:justify;">3. KPI is important, but why do enterprises often fail to achieve it?</h3>Although they understand KPI well, not all firms can achieve the target KPI. Take a look at some of the reasons below. Does your business face one of these challenges?<ul><li style="text-align:justify;">The goals are unclear, inappropriate and not SMART enough.</li><li style="text-align:justify;">KPI is not transparent enough, which means target KPI does not receive the consensus of employees, causing harmful consequences for the whole system.</li><li style="text-align:justify;">The KPI is unrealistic, failing to meet the actual capacity of the business.</li><li style="text-align:justify;">Lack of qualified managers to monitor and give timely warnings when implementing the KPI system.</li><li style="text-align:justify;">The KPI development process is cumbersome but does not focus on the primary goal of the whole enterprise.</li><li style="text-align:justify;">The actual ability of the staff is not good enough to achieve the decided KPI.</li></ul>Only one reason is enough to make the whole KPI system ambiguous and unfeasible. Make sure that before embarking on KPI implementation, the enterprise has all the necessary resources.Read more: <a target="_blank" rel="noopener noreferrer" href="https://estuary.solutions/news/en-3-ways-to-convert-from-kpi-to-okr-objectives-and-key-results-36">3 Ways to convert from KPI to OKR (Objectives &amp; Key Results)</a><figure class="image"><img src="https://api.estuary.solutions/estuary-web-mediafile/file/b9ed9187-7e4d-461e-afe5-cb1ce7eb35cb" alt="It is necessary to have a qualified manager to monitor the implementation of KPIs."><figcaption>It is necessary to have a qualified manager to monitor the implementation of KPIs.</figcaption></figure><h2 style="text-align:justify;">II. So, how should companies build and implement a KPI system?</h2><h3 class="indent-1" style="text-align:justify;">Step 1: Identify the department or person who builds KPIs</h3>There are two main methods:<ol><li class="indent-1" style="text-align:justify;">A department directly builds a KPI system for positions in that department. The human resource team only plays a supporting role to ensure that the KPIs comply with the whole organization's direction.</li></ol>According to this method, the person who develops KPI is usually the Head of the department who has the best understanding of the positions &amp; tasks in the department. The larger the department, the more subdivided the KPI system is for subordinates.Advantages: KPIs will be highly feasible and clearly show the functions and tasks of the department.Disadvantages: If the department sets its own KPIs, there will often lack of objectivity, which sets the goal too low. The advice is that if using this method, it is necessary to well communicate with the human resources team and C-level team.2. The C-level team or human resources department will provide a set of KPIs for each department. Unlike the method above, this way ensures objectivity and logic. However, the given KPIs may not be realistic and do not correctly represent the functions and duties of the department. To overcome this problem, the KPI system, after being built, needs the appraisal and evaluation of each functional department.<h3 class="indent-1" style="text-align:justify;">Step 2: Identify KPIs</h3>The department's KPIs are mainly based on the functions and tasks of that department. The KPI builder will set a general index according to that department's characteristics, then create the detailed KPIs for each position and title.KPIs for each position and title: KPIs for employees are based on their job descriptions. At the same time, KPIs must follow the SMART model. In addition, the KPI evaluations need to be done on a monthly, quarterly or yearly basis.After you have agreed on the KPIs of a department or a whole business, the next step is to apply SMART criteria to evaluate each performance indicator:<figure class="image"><img src="https://api.estuary.solutions/estuary-web-mediafile/file/ed6566fa-3857-41dc-b2a2-7620be84f8e8" alt="SMART model"><figcaption>SMART model</figcaption></figure><h4 class="indent-2" style="text-align:justify;">S - Specific: Specific goal.</h4>Each indicator parameter must be separated: Indicator Name, Calculation Formula, Source of Information, Weight, Unit, Plan Number and Implementation Number. Mixing all these factors makes it challenging to deploy and put in the software.<ul><li style="text-align:justify;">The Indicator Name: It should be brief but must reflect the nature of the indicator. For example: Revenue or Export revenue. It makes deployment more convenient, eliminating unnecessary controversy.</li><li style="text-align:justify;">Calculation Formula: It must be clear and agreed on parameters such as revenue, output, etc.</li><li style="text-align:justify;">Total Weight must be 100%</li><li style="text-align:justify;">Plan Number: It is a number or timeline, which clearly shows the goal. For example: With the revenue calculation, Unit = Billion USD, Plan Number = 150. Do not mix Plan Number and Unit.</li><li style="text-align:justify;">Implementation Number: It is a number reflecting the actual results when implementing. For example, the actual number for the period is 170 (billion VND) for the revenue.</li></ul><h4 class="indent-2" style="text-align:justify;">M – Measurable: Measurable goal</h4>KPIs must be measurable. Ideally, companies should get data from available management software such as ERP or CRM. If not, the data source must be specified. Has the indicator not been assessed before, a new measurement method should be added. For example, the customer satisfaction rate has not been measured in the past. So it is necessary to add an analysis technique such as a Customer Survey.<h4 class="indent-2" style="text-align:justify;">A – Attainable: Attainable goal</h4>Metrics should be within reach of the company or department. However, they are usually set to be more challenging than actual.<h4 class="indent-2" style="text-align:justify;">R – Relevant: Relevant factors</h4>Take into account factors that may affect your ability to achieve your goals. For example, the Covid-19 pandemic can significantly affect the ability of most businesses to achieve their goals, which should be considered when creating planning metrics.<h4 class="indent-2" style="text-align:justify;">T – Timed: A goal with a specific deadline</h4>KPIs must have a specific timeline. Usually by month, quarter, year, or a particular milestone of the year.Also, note that the performance metrics selected as KPIs will vary depending on the business type, employee-specific activities and departments. For instance, KPIs can be used to measure areas such as units sold, profit per item, product quality, customer service, the time needed to complete tasks, customers referrals, employee turnover.Even positions that seem not to contribute to the financial business growth need KPIs to align with the goals and future of the company. For example, the KPIs for the technical department is to improve the quality of the Internet connection.<h3 class="indent-1" style="text-align:justify;">Step 3: Evaluate KPI completion</h3>After determining the KPIs for each department and job title, it's time to apply them in human resources and productivity management.Because KPIs are defined based on measurable criteria, there is undoubtedly a specific evaluation method for each KPI item. In general, every job and KPI can be divided into 3 main groups as follows:<ul><li style="text-align:justify;">Group A: takes a lot of time to implement, dramatically affects the common goal.</li><li style="text-align:justify;">Group B: takes little time to implement, affects the overall goal OR/AND takes a long time to implement, has little impact on the comprehensive plan.</li><li style="text-align:justify;">Group C: takes less time, less impact.</li></ul>Each of these KPI groups will have different weights, depending on their importance, such as A: 50%; B: 30% and C: 20%To evaluate the completion level of an employee, set 3 KPIs, including A, B and C.<h3 class="indent-1" style="text-align:justify;">Step 4: Relationship between the evaluation of KPIs and salary</h3>For each KPI completion level, the KPI system builder will determine a specific salary and bonus.This policy can be pre-determined by the enterprise's leadership levels, the department's top managers, the person who builds the KPI system, or the employees themselves who agree with each other.Usually, there will be an acceptance testing session to evaluate the work results at the end of each evaluation period. The evaluation should be objective and comprehensive by incorporating the boss, colleagues, customers and employees themselves.<figure class="image"><img src="https://api.estuary.solutions/estuary-web-mediafile/file/eb6f407a-9a23-4c8a-9369-c50f311a95e7" alt="Evaluate work performance objectively based on KPI."><figcaption>Evaluate work performance objectively based on KPI.</figcaption></figure><h3 class="indent-1" style="text-align:justify;">Step 5: Adjust and optimize KPIs</h3>KPIs can be tracked and adjusted over time.Initially, review the KPIs that have just been created to ensure that the metrics are consistent. It may take the first few months for everything to be optimal, but maintain them for at least a year once the final KPIs are in place.<h2 style="text-align:justify;">III. Some notes on KPI</h2>Before building KPIs, firms need to create some context criteria for each indicator. Only then can the implementer clearly understand the meaning of each KPI. Indicator names and metrics often have an implicit comparison with a particular benchmark such as industry average growth rate, annual growth, etc. For example, a 30% revenue growth rate can be built based on an industry growth rate of 25%. And businesses want to achieve a rate higher than the industry average.KPIs are often considered at the executive level. Therefore, it is not advisable to track every performance metric in more than one place. For example, at the strategic level, businesses should only track and measure the metrics that have the most significant impact on the company.<h2 style="text-align:justify;">IV. About Estuary Solution – Comprehensive KPI management software for enterprises</h2><figure class="image"><img src="https://api.estuary.solutions/estuary-web-mediafile/file/cf4bc256-2892-43a0-a54c-6e3bc8215454" alt="Manage personal KPIs anytime, anywhere on the Estuary's mobile app"><figcaption>Manage personal KPIs anytime, anywhere on the Estuary's mobile app</figcaption></figure>Estuary provides an <a target="_blank" rel="noopener noreferrer" href="https://estuary.solutions/services/internal-working-system">internal working system</a>, helping to effectively manage goals that meet all 6 criteria: consistency, inheritance, linkage, standardized measurement, commitment, and ease easy to execute. It is the right tool for businesses that want to manage KPIs, and at the same time, build an organization where all members connect and work towards a common goal.&nbsp;<a target="_blank" rel="noopener noreferrer" href="https://estuary.solutions/contact?msg=Request+Demo+Internal+Working+System&amp;service_id=3">REGISTER NOW FOR A DEMO OF INTERNAL WORKING SYSTEM</a>&nbsp;

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High-level KPIs will focus on indicators and common goals of the whole company. In contrast, low-level KPIs are used for individuals and departments to evaluate the performance of specific jobs and processes.

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