A practical look at building and implementing your perfect performance management process.
When it comes to performance metrics, the business world loves a good acronym. KPI, KRI, KRA, OGSM, OKR and so many more swirl in and out of the business zeitgeist — it can easily become more confusing than helpful.
No one wants to be surprised by a new acronym during an important performance meeting, so we’ve compiled handy list of the most popular ones and added a quick, plain-english explanation of how to use them.
Let's start with one of the most (if not THE most) popular terms in business, the KPI (a.k.a. KSI). This handy little metric will show you whether your business, department or team is on track. Basically it's just a shorthand number that shows how well you're organization is doing
KPIs will vary based on industry, organization, or even department. For example, your sales department might use Average Profit Margin, while HR could look at Employee Churn Rate.
KPIs include many other terms you’ve probably heard of, including but not limited to:
And many more. The important thing is to choose a set of KPIs that will give the clearest picture of whether your team (or business) is on track.
If KPIs are the performance metric you use to show you how well things are going, your Key Risk Indicator (KRI) is there to make sure things keep going well. In a nutshell, a KRI is any indicator for trouble, failure, and risk — whether that's within your team, department or business at large.
KRIs can be a bit broader than KPIs and can include things like disruptors and wider industry risks, rare and black swans events, and common issues that need tracking, such as logistical and supply chain risks. Of course, KRIs will vary greatly depending on your unique line of business but you can look at them as the inverse of KPIs. For example, employee turnover for HR, server lag/network volume for IT, and number of deals lost for sales.
Simply put, a Key Process or Key Process Area is one of the most critical functions of the business.
This is the section, or handful of sections, that must keep running like a well-oiled machine in order for everything else to be smooth sailing. Remember when Facebook’s servers used to crash regularly and the site would go down all the time? No? That’s because the teams at Facebook have identified IT stability as a KPA.
The Key Results Area (KRA) and Critical Success Factor (CSF) metrics are a bit like the KPA, but wider.
A KRA goes beyond processes and looks at general areas where results are necessary in order for the business to succeed. Use a KRA to set down some broad areas necessary for long-term success, then define your Critical Success Factors (CSFs) within those areas in order to stay on track to hitting your KPIs.
For example, KRAs can usually be summed up in one or two words such as: Productivity or Cost Management. The CSF is the specific action you and your team members must take in order to drive progress in that area. For example, 'focus on developing product for 2 months without distraction', or 'reduce waste from our distribution process'.
Ah, the OKR. This goal-setting framework was popular even before the likes of Twitter and Google started using it.
This performance metric aims to strike a balance between the qualitative and quantitative. OKRs first articulate a goal without worrying about measurability. Something like "Aggressively increase revenue." That's the objective. The second step is to decide on several metrics that will track progress towards the goal. For the revenue goal above we might want to 1) Increase revenue 50%, 2) Keep our profit margin above 5%, and 3) maintain the R&D budget. These are the key results.
OKRs are great for setting big gnarly hard-to-measure goals, and then placing concrete guideposts that define success more quantitatively. For example is we weren't using OKRs in the example above we might try to increase revenue by investing the R&D budget in not-so-successful advertising campaign. That would increase our revenue, but it's probably not "success" the way we originally imagined it.
The Objective, Goals, Strategies and Measures (OGSM) model basically takes the KRA and builds a more structured outline out of it. With this performance metric, you take on an objective as the largest frame. So for example, the mission statement of your company or your biggest long-term business goal.
Then you set goals that are steps leading up to that objective. Strategies are the ways to reach goals, and ultimately, your main objective. Last but not least, you need to measure whether everything falls in line — if the strategies satisfy the goals, which then help reach the objective.
And for that, you need good measures. Your measures, bringing us full circle, are likely to be your KPIs.
As you can see, there's plenty of overlap in these performance acronyms. The acronyms themselves are mostly only good sounding smart, but the underlying ideas can be a great way to bring structure to your discussions of performance.
Finally, don't be afraid to stand up to jargon. When you don't understand something, just politely ask what it means. The other person is either being intentionally confusing in a self-obsessed attempt to appear important or they're using a useful shorthand that you should know. Either way, asking is better for everyone.
Performance management is considered a distraction. We can change this by designing our performance management processes for our employees.
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