This content is part of the Essential Guide: Key IT metrics: A CIO guide

Essential Guide

Browse Sections

Tracking too many KPIs is counterproductive

Don't overdo KPIs -- a handful should be enough to capture the essence. Any more than that dilutes the user's attention, drawing focus away from key measurements.

Key performance indicators (KPIs) are measurements structured to reflect important performance factors. Many companies have identified appropriate KPIs for their business and have incorporated them into business intelligence (BI) or executive information system (EIS) dashboards for ready display throughout the year. KPIs are meant to be continuous measurements, not something that is computed and reviewed once per month or at the end of the quarter or year.

When built into a BI system, KPIs are both the measure of a business' health and a portal to the underlying data embedded in the measurement. Clicking on the KPI graph or indicator should bring up the measurement details. Click once again on some area of the detail and it should bring you to the next level. Say the KPI is sales and the indicator is in the yellow (warning) state. Click on the gauge and it might bring up a list of districts with one in the red and the rest in the green. Click on the red district and see the territories or sales reps therein, and so forth.

You can also develop and maintain KPIs for successive layers of operations, as well as for the executive view. The territory display mentioned above would be an appropriate KPI for the sales manager; the display of reps within a territory is a good tool for the territory manager.

And that brings up an important point: key measurements at any level of the organization must be aligned with key measurements both up and down the organizational structure. Each detailed measurement should be part of the next higher-level summary so all levels of the organization are tied together and pulling in the same direction. KPIs should "roll up" into higher-level KPIs, all the way to the top measurements, which must reflect the company's strategic goals.

Some people are so enamored with the power and value of KPIs that they go overboard and configure dozens of indicators. But that's counterproductive; more is not necessarily better. Generally speaking, a handful of KPIs -- 5 to 7 -- should be enough to capture the essence of the business or segment the user is responsible for. Any more than that dilutes the user's attention, and the really key measurements might not get the attention they deserve.

BI applications from an ERP supplier or from a third-party vendor will come with predefined measurements for general indicators of business health, such as sales, receivables or cash flow, shipments, inventory and a measure of profit. Users will want to customize the dashboard for the measurements that pertain to their business strategy and, for lower levels of management, the factors that are within the control of that area of the business. You can tailor all packaged BI systems in this way, and most come with an array of measurement options. But even these standard measurements might have to be modified to better align with an organization's goals and structure, and the nature of the data available.

Next Steps

Measuring the ROI of SaaS vs. on-premises ERP

KPIs that go beyond ROI calculation

Evaluating enterprise performance management tools

Dig Deeper on ERP products and vendors

Data Management
Business Analytics
Content Management