Currently, KPI (Key Performance Indicator) is considered to be one of the most effective ways to evaluate an employees’ performance in an organization. It is used as a fast and accurate tool to motivate employees to complete their work and fulfill their responsibilities as committed. Do you understand exactly what a KPI is? What is the role of building a KPI rating system for businesses? What should be kept in mind when developing a KPI rating system? If your answer is No to one of the questions, then let’s find out more about this system.
- What is KPI?
KPI in English stands for Key Performance Indicator, which means the measure of job performance. This is a tool for companies and businesses to evaluate work efficiency for both individual and team as a whole through data, ratios, and quantitative targets. Based on KPI, the working plan and the allocation of tasks will be easier and more appropriate. Some fields such as human resources, sale, manufacturing, construction, etc., to set the specific KPI is extremely necessary to be able to manage the employee performance. However, not all fields can apply KPI, for example, fields that are related to arts.
- Why is the KPI evaluation system needed?
Normally, each employee will have weekly/monthly/ quarterly targets to accomplish the set goals. Through KPI, team leaders and managers will refer to those indicators for performance evaluation. They can clearly see whether their employees complete the work or fall behind in order to offer immediate support. KPI also acts as criteria to determine the reward and penalty regime for employees.
In general, the use of KPI is for a managerial purpose not only supports the company but also helps the employees as below:
To the Employer:
- Easily track the performance of employees by a visual, transparent, and accurate report as well as devise appropriate compensation and discipline regimes.
- Improve the efficiency of work in general
- Ensure that goals and visions can be achieved as expected
To the Employee:
- Understand their capacity and level of work completion
- Have motivation for working towards the goal
- Identify deficiencies if delays in performing tasks to improve promptly
- Matters to keep in mind when developing a KPI evaluation system
Apply too many KPI indicators for a department or individuals: individuals or teams may lose focus on the key KPI targets. At that time, it may happen that many or all individuals and divisions are assessed to fulfill the task that the company does not meet its key KPI targets.
- Abuse of KPI system in management: setting KPI for all employees in a company and spending too much time to monitor and track those indicators. This wastes the time and effort of managers and employees in designing and monitoring the system while having KPI are not necessary in certain positions.
- A KPI system that is separated from the bonuses scheme: what is the point of having the KPI evaluation without offering any bonus for good performers? Without incentives, there is no difference between good performers and bad performers then the KPI systems fail to fulfill its mission, which is to motivate the employees towards the company goals.
- Lack of IT system for data collection: In fact, when setting targets, there will be certain KPIs that requires data that the current IT system may not have. Therefore, companies should consider investing in the new system to collect database prior to the adoption of KPI for performance evaluation.
We hope that our sharing is helpful to you.
