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Using KPIs To Identify Trends In Performance

by Lyndsay Wise, President, WiseAnalyticsMonday, November 22, 2010

Organizations are increasingly fascinated with dashboards due to their ability to quickly visualize data in an interactive and appealing manner. As technology becomes easier to interact with, consumer expectations change.  No longer are year long analytics implementations acceptable for businesses looking at how they can gain more visibility into their daily operations and better manage their data and overall performance.  Now, organizations look at dashboards as a way to gain quick insights into what is happening within their company. The ability to enter into the world of analytics and manage performance through the use of key performance indicators (KPIs) provides an obvious benefit to dashboard adoption.

KPIs on their own do not provide a full entry to business intelligence but do enable organizations a way to monitor their overall performance.  The use of KPIs enables organizations to set targets, identify trends, look at potential issues and opportunities, and plan future activities to help increase profits. This article looks at the value KPIs provide in relation to trending and general analytics, how KPIs can be integrated within a full BI framework, and the use of KPIs to increase visibility and performance.

A closer look at KPIs and metrics

There is much dashboard discussion surrounding the differences between metrics and KPIs. In essence, metrics help companies measure performance.  For instance, organizations use metrics to monitor sales, identify customer support service levels, and determine average time to resolve issues.  Generally speaking, KPIs are developed to help drive performance and to provide an indication of whether a target (critical to the success of the organization) is being met.. KPIs tend to be fewer in number compared to their metric counterparts, but are much more targeted and related to the vision and goals of the company.

When businesses look at defining KPIs, it becomes essential to identify what they hope to achieve.  This can include items such as an increase in revenue, the expansion of new products and services, lowering of overall costs, and enhancing customer experience. The main difference relates to the fact that metrics are used to monitor many different areas within the organization, whereas KPIs are tied to the strategic goals of the company. Consequently, dashboard design may incorporate many metrics, but their bottom line should lead up to a series of KPIs that, although limited in numbers, actually reflect the bottom line as well as the general goals the organization hopes to achieve in the short and long-term. An example showing the overlap between both might be the monitoring of sales.  Every company should set sales targets based on product, region, etc. that reflect an organizational key performance indicator. At the same time, businesses will also be interested in monitoring metrics associated with how sales reps are performing, comparisons between product lines, and any general discrepancies that may exist.  These metrics then provide an in-depth view into the overall sales targets that are set at a higher level.

In general, organizations are starting to look more closely at the importance of data consolidation and the use of KPIs to help drive performance. General metrics limit how dashboards can benefit companies unless a subset also provides deeper insights into overall business performance.  The combination of both gives a balance between broad analytics and performance management.  This in turn provides the basis for strong dashboard design or broader BI use.

Integrating KPIs within a BI framework

Dashboards have become popular due to their accessibility, and many businesses are using metrics management as either an expansion to their BI environment or as an entry point to broader analytics. Both give decision makers more visibility into operations, trends, and general performance.  The ability to integrate dashboards within a BI framework can help with additional trends identification and general analytics. Data warehouses collect and store historical data and enable large amounts of data to be processed so that trends over time can be developed and compared against the indicators being monitored. Issues can then be identified before they become problems. This can be achieved by analyzing the cause and effect of actions, predicting possible outcomes, and compiling the results within a dashboard. 

Using a dashboard in conjunction with a BI infrastructure and analytics gives organizations the ability to develop broader visibility in relation to the KPIs being measured. Organizations can then choose to develop their KPIs independently of other BI initiatives, but as general use expands, the ability to integrate broader analytics within metrics management can provide better visibility into areas that overlap with or relate to the KPIs being monitored.

Identifying trends and ways to enhance performance

One of the benefits of KPIs is the ability to identify trends.  Due to the consolidation of data and constant information updates, dashboards are ideal for looking at year over year or month over month comparisons. Although KPIs look at set targets and monitor performance, the ability to look at trends or to make comparisons enables broader analysis of data.  By combining trends based analytics with KPIs, it becomes possible to develop predictive analytics as well. Because of the increasing flexibility of dashboard functionality, organizations can take advantage of traditional BI features within their data visualization use. This means that dashboards are slowly becoming the general interface of broader analytics.

Takeaways

Dashboards are steadily gaining in popularity in relation to overall BI use.  Decision makers want self-service and visually pleasing ways to analyze data.  KPIs provide a direct way to monitor and manage important targets that directly relate to business performance.  In addition, metrics can be used to look at in-depth performance with the ability to tie the metrics into the KPIs.  Overall, the use of KPIs to monitor what is happening within the company and to look at trends provides more value within a business’ performance management framework.

About the Author

Lyndsay Wise is an industry analyst for business intelligence. For over seven years, she has assisted clients in business systems analysis, software selection and implementation of enterprise applications. Lyndsay is the channel expert for BI for the Mid-Market at B-eye-Network and conducts research of leading technologies, products and vendors in business intelligence, marketing performance management, master data management, and unstructured data. She can be reached at lwise@wiseanalytics.com. And please visit Lyndsay's blog at myblog.wiseanalytics.com.


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