Key Perfomance Indicators (Kpis) Essay

1218 words - 5 pages

Performance Indicators and Performance Indicator Systems: „ Performance indicator systems are well suited to evaluate the performance of a company. Please, explain what performance indicators and performance indicators systems are and comment on the initial statement. “

Performance Indicators and Performance Indicator Systems

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Performance Indicators and Performance Indicator Systems
1. Introduction As evaluation and optimization of processes becomes more and more important in todays globalizing economy, companies are in need of tools to evaluate and optimize their performance because as Robbins & Coulter stated: „what does not get measured does not improve.“ (Robbins & Coulter, ...view middle of the document...

In general performance indicators are defined with respect to cost, time, and/or quality and can be separated into qualitative indicators and quantitative indicators. „Qualitative performance indicators

Performance Indicators and Performance Indicator Systems

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often measure intangibles such as people's opinions and perceptions. Quantitative indicators involve numbers and hard facts.“ (Ciaran John, n.d.) Both kind of indicators are mostly visualized by a numeric value and are based on a business goal. These business goals are always quantifiable, measurable and outputdriven. An example for a basic performance indicator would be the average response time for a customer query. With the help of these indicators organizations can compare themselves internally but also compare themselves with their competitors. Within the company they are used to see which departments are slacking and where they need to improve, the progress and regress within the company but also as a tool to motivate employees - for example - with incentives which depend on these indicators. This might seem like a great idea but can also lead to quite the opposite of the desired, as employees might not do their job in the way that benefits their company the most but in the way that the indicator of their individual work is the highest. Also organizations need to keep in mind that if performance indicators for their employees are set too low, people will get lazy and if set too high people will get demotivated. Furthermore companies must carefully use performance indicators because even though once an indicator is set and history of that measure is build, adjusting that indicator when business is undergoing a change can lead to useless history data and therefore expensive costs of setting up and implementing new performance indicators. Therefore to optimize the use of these performance indicators it is necessary that they are evaluated frequently and updated regularly.

3. Performance Indicator Systems

The first popular indicator system was the DuPont analysis, which originated in 1919 and was the first of its kind. It was invented by the american chemical company DuPont de Nemours Co. and is still in use today. This system was developed to take a look at the return on investment and therefore has the goal to maximize the returned results per used unit of money rather than a basic maximization of profits. Basically all performance indicator systems have their origin in this DuPont analysis.

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So performance indicator systems are systems which measure the effects which the the single indicators have on each other. These systems also give a good overview because they focus on specific performance indicators which influence each other naturally. Subsequently there are a huge number of different performance indicator...

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