Key performance indicators are commonly used by management as a way to align business goals with employee performance. They are especially helpful for helping management to quantify performance in industries that are difficult to measure. KPIs can help management to track process improvements through process efficiency and employee productivity.

Step 1.

Identify the three most critical processes in your organization. This will depend on your business. For instance, it may be delivery, distribution, and the order fulfillment process for one company and procurement, logistics, and sales origination for another company.

Step 2.

Map the process from end to end using a flow chart. Diagram the process from end to end. Be sure to include other functional groups which may contribute to the process such as finance or human resources.

Step 3.

Based on company goals, create a KPI for each process. Use the flow chart to help determine critical points in the process. For instance, if the goal of the company is to cut costs, then the number of renegotiated contracts or year-over-year contract savings may be the best way to gauge performance. The most common KPIs are based on time or money.

Step 4.

Assign data inputs to one person for each KPI. The accuracy of the data is just as important as the calculation.

Step 5.

Create a report to calculate all three KPIs. For instance, let's say you own a widgets company and the main goal of the company is to increase widget revenue and reduce widget costs. Your KPIs can be month-over-month revenue growth--growth divided by starting revenue--and cost savings per employee--total savings divided by number of active employees.