When a project reaches its closure, the project manager would want to determine whether it is a success or a failure. A project’s success is no longer determined by factors such as on-time submission, or completion within budget. A project may have been delivered on time and within budget, yet it may not have been able to deliver the expected value. In such situations, you will not consider the project a success. In order to determine whether the project is a success or a failure, there are a few key questions that need to be answered such as:
- Are the benefits outlined in business achieved?
- Is the expected ROI achieved?
- Is the end user satisfied?
- Is the solution provider able to cater to customer needs?
- Are the sales in line with what was forecasted?
- Is the market demand for the product or service as expected?
What are KPIs?
In the current scenario, project managers are expected to be in close contact with customers to understand their expectations and ensure that the project delivers outcomes as specified in the business case. This is how a project’s success is measured. In order to deliver business value, one has to understand the business drivers: the problems or issues, or objectives that nailed the project and whether they are resolved. One of the best ways to measure business value is by defining the key performance indicators (KPIs) of a project. The actual performance should be measured using the KPIs.
According to experts, ‘KPI is a business metric used to evaluate factors that are crucial to the success of an organization.’ KPIs differ as per organizational culture, objectives, and other factors. A KPI should essentially be a measurable value helping organizations determine whether target objectives have been met. A few examples of KPIs include sales KPIs, marketing KPIs, supply chain KPIs, retail KPIs, call center KPIs, financial KPIs, etc. A marketing KPI measures the return on investments made on marketing campaigns such as advertisements, retargeting, email marketing, etc. The return is measured in terms of specific growth targets. Sales KPIs, on the other hand, analyze the rate at which an organization is growing in terms of sales. On the basis of the analysis, the sales team will be informed which products or services are selling and which are not. The analysis may also act as suggestions for the decision-making body of an organization to identify appropriate areas of investment.
Characteristics of KPIs
KPIs are measurable metrics and usually act as an agreement between a project manager and stakeholders as the success factors of a project. In order to measure success factors accurately, KPIs should be:
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Aligned:
In line with organizational goals and vision
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Measurable:
Should be quantifiable units
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Optimized:
KPIs should be focused on delivering strategic values rather than non-critical business outcomes.
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Realistic:
KPIs should be achievable within the given timeline.
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Clear:
KPIs should be clear and concise. Both management and stakeholders should have a clear understanding of what the KPIs are.
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Achievable:
The targets set should be reasonable and achievable given the current situation of your organization and should be validated individually.
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Agreed:
Stakeholders should agree on the KPIs and should be ready to share the responsibility of achieving the target.
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Reported:
Once the project is in progress, regular reports are sent to stakeholders in terms of where the project stands against the set targets. In case, stakeholders are not happy with the progress, they can take corrective measures.
A well-known expert in performance management, Bernard Marr, came up with a list of a few KPIs. The list is quite helpful and should be available to all managers. However, it should be kept in mind that KPIs differ from one organization to another. Here are a few from the list provided by Bernard Marr: gross profit margin, net profit margin, net profit, operating profit margin, revenue growth rate, economic value added, total shareholder return, return of capital employed, return on investment, return on equity, return on asset, cash conversion cycle, debt to equity ratio, operating expense ratio, etc.
KPIs and Organizational Growth
As discussed before KPIs differ depending on organizational vision, mission, culture, and growth. The following are a few examples.
- A business may have one of its KPIs as a percentage of income derived from end users.
- For a school, the KPI can be the pass rate of students each year.
- A customer service sector of an organization may have one of its KPIs as the number of calls handled successfully, or the total number of calls taken in the first hour.
- An NGO may have one of its KPIs as the number of donations received in a year.
For example, an organization’s key motive is to be the most profitable organization in the industry. The organization’s KPIs will be in line with measuring profit such as shareholder equity, and pre-tax profit. However, the percentage of profit going towards social causes will not be a KPI for this organization. On the other hand, for an engineering college, the KPI will be, the number of students getting placed successfully after passing out.
Types of KPIs
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Business Resources – KPIs:
It is interesting to learn how business resources can act as KPIs helping you assess business performance. You being the project manager may want to understand whether resources have been utilized completely to have an appropriate return on investment. Resources such as raw materials, and software licenses electricity usage, act as metrics and are very important when assessing project outcomes. For example, if a software license expires while the project is running, then the outcome will be impacted and the resource will not be used to its maximum level.
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Process Results – KPIs:
Often process results are used as the most important KPIs by project managers. The success of processes used in projects is used by project managers successfully to deliver similar or better outcomes for other projects. These processes are used as best practice methods to instigate more process developments and in turn, grow to a higher level. Business processes when used as KPIs instigate business growth especially when the process is automated.
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Quality Assurance – KPIs:
Although we have said before that it is necessary for KPIs to be in quantifiable terms, sometimes quality assurance in projects also acts as KPIs. Project managers use metrics such as technical skills, motivational level of employees, and subject knowledge to determine the performance of a project. Although measuring metrics like team spirit or motivational levels is quite a task, tools such as surveys or questionnaires are used for such purposes.
Therefore, as seen in this article, having key performance indicators is essential to measure project performance. These metrics help you determine whether it is worth making the investment for a project, taking risks, etc which help the business run successfully in the long run.
