Is it best to measure metrics or KPIs

Any decent business dashboard has a good balance of metrics and KPIs.

Metrics are valuable if the audience understands the context well enough.

KPIs can help take everything back to a standard scale.

Aiming for a balance between the two when creating a dashboard that delivers a powerful message is good practice.

METRICS TELL YOU WHAT HAS HAPPENED

A metric has three components:

  • a value
  • a context
  • a time frame

Metrics are generally the measurement of anything quantitative from Annual Revenue to Total Web Site Visitors this month.

They are valuable as they explain to everyone what has happened and what is happening in a certain aspect of the business.  Provided the audience understand the context, the metrics have meaning. 

Metrics become more valuable when described over time or when used to make a comparison.  Knowing monthly revenue is a must for any business.  Seeing the annual trend for monthly revenue is also very valuable.

In this example, Revenue seems to be on the rise.

The challenge with metrics is that they are not always comparable.

Financial metrics can generally be compared because they are normally described in dollars. Think Revenue, profit and costs. But metrics that are not measured in dollars can’t be easily compared to those that are. Monthly Revenue per month can’t be compared directly to Customers per month unless the metrics are transformed in some way.

KPIs EXPLAIN HOW WELL YOU ARE PERFORMING

A KPI compares a metric against its targets.  A common example is Actual Revenue plotted over time against Forecast Revenue.  It’s easy to see on a graph if Actual Revenue is above or below the forecast.

Revenue appears to be tracking the Targets with some ups and some downs.

Like a metric, a KPI has a value a context and a time frame.  Yet the value for a KPI is relative rather than absolute.

That’s the great thing about KPIs.  They provide a relative score; a number that relates one number to the other.  The KPI for Actual Revenue v Forecast Revenue could be “We are 89% on target for this month”.

metrics or KPIs

The KPI results reveal Revenue is not keeping pace with the Target.

When comparing measures against performance targets, they can also be converted to a standard scale, such as 1 to 10 or “good”, “bad” and “ugly”.

This means they are more comparable to other metrics that would not normally be comparable. (but not always; see footnote on linear v non-linear scales as well as relative and absolute values).

Warning: Standardising is a great way to compare overall performance across many metrics, but don’t rely on it. Standardising everything can be useful but people still need to see the raw numbers to get the whole picture.

IN SUMMARY

When building a dashboard, use a combination of metrics and KPIs.  Remember though, metrics are valuable if the audience understands the context well enough.  KPIs help take everything back to a standard scale.

Aim for a balance between the metrics and KPIs when creating a dashboard that explains, rather than explores the results.

FOOTNOTE

Calculating all your business metrics into a comparable score can be a useful exercise but take care to ensure you don’t end up comparing apples with oranges.  When creating KPIs that have numeric scales it is really important that they are all linear and they are relative.

LINEAR AND NON-LINEAR SCALES

Linear scales are ones where the change between two values is the difference between the values. For example, the difference between 3 and 4 would be represent the same amount as an increase between 5 and 6.

RELATIVE AND ABSOLUTE VALUES

Absolute values are the basis of metrics.  $550m dollars, 66,500 customers or 22 sales team staff are all examples of absolute numbers.  They represent a precise measure of something.

Relative numbers are dependent on other numbers.  Some examples are:

  • “2 out of 5 customers reorder in 3 months”
  • “6 out of 10 sales reps are on the road at any time”

These numbers don’t tell you how many customers or sales reps there are but they give you a sense of proportion.

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