There is often a lot of confusion surrounding the definition and use of the various metrics: KRA, KRI, PI and KPI. In this article I will try to clarify the difference between each and how they apply to dashboards and scorecards.

First, let’s review the difference between a dashboard and a scorecard:

The main difference between the two is that dashboards monitor the performance of operational processes. [events and transactions] while dashboards show progress towards tactical and strategic goals. Also, a scorecard is driven by a management methodology, such as a balanced scorecard. They are a direct indicator of how well corporate strategy is being executed.

Quick metric definitions

KRI – key result indicators indicate what you have done in key result areas [KRA’s]. These are broad result areas where the overall performance metric, KRI, is the result of many actions.

IP – Performance indicators tell you what to do. These are more focused on smaller target areas than KRIs, but less powerful than KPIs.

KPIs – Key Performance Indicators tell you what to do to dramatically increase performance. They are the result of an action and are directly linked to a strategic objective.

KRI

KRIs are indicators of how well the organization is being governed, and are used by the board to gauge the effectiveness of overall management decisions. For an effective KRI panel you will have no more than 10-12 measurements.

The KRIs include:

  • Financial measures* such as return on capital employed, NPBIT, EBIT
  • Customer measures such as customer satisfaction and customer profitability.
  • Internal measures such as employee turnover, employee satisfaction

These measures are broad, covering long periods of time such as quarters or years.

*In general, all financial measures are KRI as they are historical and contribute to a number of contributing factors. When a focused financial measure relates directly to a strategic imperative with a financial result, then in some cases a financial metric can also be a KPI for a defined period.

Indicators of performance

These are metrics that represent performance in a particular area and can be both strategic and tactical. They represent a more focused performance area than a KRI, but may not necessarily be critical to overall strategic execution. For example, IPs may include measures such as:

  • Profitability of the top 10% of customers
  • Net profit of a particular product group
  • Percentage increase in sales in a particular region
  • Percentage of employee participation in the training plan

KPIs

KPIs are direct indicators of management decisions at the strategic level; that is, they are the most critical metrics of the company in terms of effecting a significant improvement in performance.

KPIs are the result of an action that directly contributes to a strategic objective and are measured in very short periods of time: hours, days, weeks and months.

An effective KPI dashboard can have more measures than a KRI dashboard, but never more than 18-12. The selection of measurements will be determined by the purpose of the board. For example, a department dashboard may only have 8 KPIs, while a department balanced scorecard will typically include a mix of PIs and KPIs and may include 18-20 measures. Remember that the difference between a dashboard and a scorecard is that a scorecard has a methodology attached to it.

There is no ideal list of KPIs for all companies, or even for all companies within an industry. The reason for this is that two competing companies may have totally different strategic imperatives. A strategic imperative is that overriding strategic objective that all other strategic objectives serve. It is the dominant focus of the company.

Thus, two manufacturers may have similar strategic goals and IPs, but one manufacturer may be focusing on expansion to gain a dominant foothold in an emerging market and see this as the most critical goal to sustain its competitive future. The other manufacturer may be more focused on reducing its number of customers and increasing the value of each customer’s annual sales.

However, the KPIs share common characteristics that include:

  1. They are future-oriented in the sense that they have a significant impact on the fulfillment of a strategic objective.
  2. They are linked to the responsibilities of teams and individuals.
  3. Typically impact all other performance measures and more than one BSC perspective
  4. they are not financial
  5. They have short measurement cycles and must be constantly monitored

Therefore, these measures have a direct link from the strategy established by the senior executive team to individuals through the organization. It is imperative that everyone has a good understanding of the importance and impact of these measures, and the corrective action required if performance is not meeting targets.

For example, if meeting manufacturing deadlines is a KPI that contributes to the strategic imperative, if there are indications that deadlines are being missed, immediate action will be taken to onboard more staff, improve productivity, resolve any supply issues, and identify and correct for any other contributing factors. This metric will impact other metrics such as customer retention rates, order values, customer satisfaction, production capacity and process efficiency, etc.