Performance indicator

Since there is a need to understand well what is important, various techniques to assess the present state of the business, and its key activities, are associated with the selection of performance indicators.

When a decision-maker considers several options, they must be equipped to properly analyse the status quo to predict the consequences of future actions.

Should they make their analysis on the basis of faulty or incomplete information, the predictions will not be reliable and consequently the decision made might yield an unexpected result.

This means the measure has a Specific purpose for the business, it is Measurable to really get a value of the KPI, the defined norms have to be Achievable, the improvement of a KPI has to be Relevant to the success of the organization, and finally it must be Time phased, which means the value or outcomes are shown for a predefined and relevant period.

Overall equipment effectiveness (OEE) is a set of broadly accepted nonfinancial metrics that reflect manufacturing success.

Businesses can utilize supply chain KPIs to establish and monitor progress toward a variety of goals, including lean manufacturing objectives, minority business enterprise and diversity spending, environmental "green" initiatives, cost avoidance programs and low-cost country sourcing targets.

[11] The provincial government of Ontario, Canada has been using KPIs since 1998 to measure the performance of higher education institutions in the province.

[14] Human Resource Management In practice, overseeing key performance indicators can prove expensive or difficult for organizations.

[17][18] Sometimes, collecting statistics can become a substitute for a better understanding of the problems, so the use of dubious KPIs can result in progress in aims and measured effectiveness becoming different.

For example, during the Vietnam War, US soldiers were shown to be effective in kill ratios and high body counts, but this was misleading when used to measure aims as it did not show the lack of progress towards the US goal of increasing South Vietnamese government control of its territory.

[16] Another example would be to measure the productivity of a software development team in terms of lines of source code written.

This approach can easily add large amounts of dubious code, thereby inflating the line count but adding little value in terms of systemic improvement.