Anyone who’s been in business for a while has had the conversation about measuring performance. The topic makes some people radiate with joy and gives others a case of severe narcolepsy.
Here I want to talk about a few different business terms that are too-often conflated or confused, which are: Goals, Strategies, Metrics, Objective Key Results (OKRs), Key Performance Indicators (KPIs), and Key Risk Indicators (KRIs).
Standard in this context means that the system needs to be agreed upon by presenter and audience.
- Goals are desired outcomes, e.g., increase sales, improve our hiring process, or increase profit by 35%.
- Strategies are prescriptive plans or methods of achieving stated goals.
- Metrics are standards of measurement that capture the efficacy, performance, or quality of a plan, process, or product. The term Metrics is quite general, and applies to any situation where the purpose is to keep track of progress against a goal. Examples include, Number of Sales, Revenue Generated, Accidents this Quarter, etc.
OKRs often have a single goal but multiple key results.
- Objective Key Results (OKRs) combine both goals and metrics into a single system focused on simplicity and business alignment. The system works by filling in the statement,
“I will _____ as measured by ______.”
An example of an OKR would be a goal of “Improving Customer Service”, as measured by “Improving Positive Survey Results by at least 25%”.
KPIs feel like the weakest term here, because they’re really just a high priority metric for the business.
- Key Performance Indicators (KPIs) are metrics for key business objectives, so you don’t want to call every business metric you have a KPI. Examples might include, Average Sale Per Customer (for a sales organization), Time to Resolution (for a customer service group), or Time to Remediation (for a security program).
- Key Risk Indicators (KRIs) are designed to alert decision-makers that the risk level for some component of the business is nearing—or has crossed—a predetermined threshold of tolerance. Examples might include: the probability that a key hardware component will fail, the number of complaints per 1,000 customers, Reported Workplace Incidents, etc.
The main difference between Metrics and other terms is that some of the terms include objectives, which Metrics do not.
Key differences between measurements
Because so many of these sound similar, it’s important to call out the distinctions.
- The difference between a Goal and a Strategy is that a strategy is a defined way of achieving Goals. Goals are the objective, and strategies are how to get there.
- The difference between KPIs and KRIs is that KPIs are generally for positive elements, such as Sales per Employee—which you want to be high—while KRIs you want to keep lower than a certain threshold.
The “Key” part of KPI should remind you to limit their number.
- The difference between KPIs and regular metrics is that KPIs are the things that—if you don’t do them well—the business is almost guaranteed to fail. You don’t want to make every metric a KPI, because if everything is critical then nothing is.
If a decision cannot be made as the result of consuming a given metric, ask yourself why you’re tracking it.
- The difference between OKRs and KPIs is that OKRs are focused on both the objective and the success criteria, whereas KPIs are often tracked without defining what a good or bad number actually is (and those numbers can change).
Metrics are like Intelligence in that both are designed to improve our understanding of reality.
- Regardless of the system, always remember that the purpose of measurement is to improve decision-making through a better understanding of reality.
- Metrics are measurements of things that matter to help you make better decisions.
- KPIs are your bussiness-essential metrics.
- KRIs are operational-risk monitors to make sure you’re operating within risk tolerance.
- OKRs are a combination of objectives and associated measurements.
- My favorite article on OKRs Link