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KPIs: Measuring the Quantity and Quality of Your Business

written by: Sidharth Thakur•edited by: Linda Richter•updated: 5/19/2011

Why do you need KPIs? How can KPIs contribute toward improving performance? Find answers to these and more such questions about the importance and benefits of KPIs in BI.

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    In business intelligence, KPIs are the metrics used to quantify and measure the performance of the key activities of a business. These metrics can be defined for all the different aspects of a business. However, the business needs to be very selective and must choose only the most important activities or processes to include in the KPIs.

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    Why Use KPIs in Today's Climate?

    Let’s take a look at the importance of KPIs in business intelligence.

    Improved Performance

    Identifying and constantly monitoring KPIs can be your first step toward improving the overall business performance. Not every business process has a significant impact on businesses performance. Thus, separating the critical activities from the lesser important ones allows the business to redirect its efforts and resources toward activities that have a direct and significant impact on its performance and success. Giving top priority to the key processes and keeping a close watch on them guarantees improved overall performance.

    Focused Approach Toward Key Goals and Objectives

    Being able to distinctly identify which activities are most important for a business to be successful, or to stay on track, helps the management to focus its attention in the right direction. Business intelligence basically means to assist management in the achievement of goals and objectives. While the list of objectives may be extensive, there are only a few critical objectives that have a major stake in the success of a business. This is quite in coherence with Pareto’s 80:20 rule for problem solving, which states that 80 percent of the problems can be solved by addressing only the most critical, the issues in the top 20 percent. Similarly, using KPIs in business intelligence helps management to focus on those vital goals and objectives that have the most significant impact on the overall goals and objectives of the business.

    KPIs are the Basic Pillars of Business Intelligence 

    Quick and Easy Detection of Problems

    Business intelligence is fruitful only if it can easily detect problems at an early stage. And establishing KPIs is one of the best techniques to identifying problems before they mar the overall success or performance of the business. For each KPI, a threshold limit is established; and every time there is a breach of this threshold, the system will generate an alert. Accordingly, the concerned personnel can begin implementing the remedial measures. Since KPIs are more critical than most other business processes, it’s important that the problems surrounding them are addressed on a top priority basis.

    Fact-Based and Faster Decision Making

    Critical business issues require timely decision making, and that is possible only when people have direct and easy access to the related data. A business intelligence system that is based on KPIs has clearly defined separate data stores for storing all the information related to each KPI. This ensures that the decision maker doesn’t have to sift through large volumes of data at the time of an emergency. With the right data in hand, the decision maker is in a better capacity to make a fact-based and quicker decision.

    A Tool for Strategic Planning

    Once a business has identified its KPIs, it will be able to gauge the impact of a decision related to one aspect of the business on the other aspects. This feature comes in handy at the time of strategic planning. Before the business finalizes and implements its new strategic plan, it can virtually ascertain the kind of impact on the overall business--and its extent--with the change in variables for a particular key process indicator.

    Having learned about the importance of KPIs in business intelligence, your next step should be to implement this performance management system for your business. There are several stellar software applications that can be used for recording and presenting the performance of KPIs, but if they all seem too expensive, the simplest tool you can use is a business scorecard.