Key performance indicators (KPIs) are important for any organization. They measure the success or failure of initiatives, projects and products with specific metrics and can be used to make informed decisions about future strategies. However, there is no one single definition of what a KPI is; instead, they come in many forms. KPIs are key metrics for product and project managers and are used to track the success of products and projects. This blog post will explore two types of KPIs – leading KPIs and lagging KPIs – as well as provide some examples.
What are KPIs?
KPIs are defined as a quantitative measure that indicates the performance of a project or product which in turn is used to measure the overall outcome/impact of a project or product implementation. KPIs are also defined as specific measurable values for evaluating how well the objectives have been achieved, how successful the initiatives have been. KPIs help in defining and tracking the direction in which business initiatives are taken to achieve one or more business objectives. Tracking KPIs help identify the areas that need improvement and allows decision-makers to make data-driven decisions. Tracking KPIs help ascertain a hypothesis and align the strategies accordingly. KPIs are key to data-driven decision-making.
The examples of KPIs include some of the following:
- User adoption rate: Number of new customers acquired in a given timeframe
- User retention rate: Number of returning users in a given timeframe
- User engagement KPIs: Number of sessions, visits, or time spent on site per user in a given timeframe; the number of actions completed by the user within an application, etc.
- Number of sales made in a given timeframe (e.g., month, quarter, or year)
- Number of customer incidents or customer complaints resolved within 24 hours
- Percentage increase/decrease in sales or revenue from last year’s revenue
- Number of software bugs fixed in a given timeframe
- Number of Covid-19 cases in a given region in a given timeframe
- The recovery rate of Covid-19 cases
- Rate of deduction processed in account receivables
- Rate of collection related worklist processed
- Rate of JIRA points achieved per sprint in Agile Scrum stories
What are different kinds of KPIs?
The KPIs can be primarily of two kinds:
- Leading KPIs: Leading KPIs are defined as the KPIs that are used as an early indicator of the performance of a business initiative (project or product). They indicate whether the project or product implementation is moving in the right direction and what changes need to happen so as it can reach its goal/objective. Leading KPIs are useful because they are able to identify problems that earlier on, would have been difficult or even impossible to detect. For instance, leading KPIs for a marketing campaign indicate whether the campaigns are successful; they show if there is an increase in traffic and conversions which can be used as indicators of success. The following are few examples of leading KPIs:
- User adoption/retention rate: An increasing user adoption and retention rate can indicate that the product growth is in the right direction and product monetization goals (lagging KPIs) can be achieved. You can think of projects to improve upon the user adoption and retention rate such as improving the web page performance, usability, etc.
- Rate of collection worklist processing in account receivable: The increase in the rate of collection worklist processing would mean greater efficiency and productivity of the collections team, leading to better revenue generation (Lagging KPIs). You can think of innovative ways to increase the rate of worklist processing. Automation and AI techniques can be very helpful in ranking the worklist items and improve overall productivity.
- Rate of deduction processed: The increase in the rate of deduction processing in account receivable would mean greater efficiency and productivity of the deduction management team leading to better revenue.
- Rate of JIRA stories points delivered in every sprint: A constant or uptrend on this KPI can be an indicator to the project success which then can be used to think about the revenue generation (lagging KPI) from successful project execution.
- Lagging KPIs: Lagging KPIs are defined as KPI s that indicate whether an initiative is on track with respect to its final goal or objective. These metrics provide information about how things currently stand. The value of lagging KPIs is a consequence of earlier events (can be measured using leading KPIs) and thus their values change only after the actual result has been observed. This type of KPIs can also be called “realized” or “post-processed.” Lagging KPIs are important because they provide objective information about the current state of things and can be used for comparison with future results. The following are few examples:
- Lagging KPIs for a marketing campaign indicate whether sales have been generated and if so, how much?
- Lagging KPIs can represent product revenue and hence product growth. Product ROI in terms of revenue can be used as a lagging KPI for product optimization.
- Lagging KPIs can be the ratio of payment received from customers: This is a good indicator of the revenues collected by the organization and can be used to determine if there has been an improvement in revenue generation.
How to design KPIs for projects or products?
There are different ways to identify suitable KPIs. However, the following can be one of the techniques that you can use to determine KPIs:
- Identify the problems that need to be solved
- Identify the change that would happen as a result of solving the problems; Identify the KPIs that would ascertain the final change. These KPIs could be termed as lagging KPIs.
- Determine the sub-problems which require to be solved in order to realize the change
- Identify a solution approach for all of these problems; The solution approach become your hypothesis that will result in resolution of the problems
- Identify the key performance indicators & benchmarks which will ascertain that your hypothesis or solution approach is working. These KPIs will be termed as leading KPIs.
How to track KPIs for projects or products or business?
There are different methods to track the KPIs of a projects or products or business. The following are few examples:
- Project KPIs tracking can be done by using simple techniques such as the usage of excel sheets/analysis worksheets, etc. to track these metrics on an ongoing basis so that actionable insights can be generated at regular intervals for betterment and improvement in results over time.
- Product KPIs can be tracked using data visualization tools such as heat maps, funnel analysis etc. to track these metrics on an ongoing basis so that actionable insights can be used for betterment and improvement of products and assess the product success.
- Business KPIs tracking can be done by companies through the use of dashboards which track these metrics on an ongoing basis so that actionable insights can be use to track leading and lagging business KPIs.
Who are stakeholders related to KPIs tracking?
The following can be few stakeholders who would be involved with different aspects of KPIs tracking:
- Product managers / business analysts: Product managers or business analysts would be involved with tracking business and product KPIs tracking.
- Project managers / project members: Project team would be involved with the process of KPIs tracking for projects.
- Marketing/sales teams: Marketing or sales teams can use kpi metrics to track marketing campaign performance, etc. They are responsible for generating real-time insights on data analysis and can make decisions based on these insights.
- IT/technical teams: IT and technical team is responsible for building and maintaining the kpi tracking mechanism (dashboards, etc.) to track KPIs of projects or products or business.
KPIs are important metrics that measure the performance of an initiative (projects, products etc) and ensure the success of the projects or products. These metrics can be used to identify areas for improvement, help prioritize tasks, manage projects or products more efficiently and take corrective measures in time. The KPIs should ideally fall into one of two categories- leading KPIs which are early indicator (hence, leading) of how initiative progress currently stand with respect to its final goal or objective; lagging KPIs that tell you whether something is on track based on earlier events (can be measured using leading kpis). In case, you would like to know more or discuss more, please feel free to drop me a message. Additionally, in case you are building your product and would like to learn about how to use first principles thinking for building innovattive products, check out my post – First principles thinking explained with examplesÂ
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I found it very helpful. However the differences are not too understandable for me