KPI vs. KRI – The Difference and the Importance
Slava Pastukhov
If you’re familiar with business intelligence and dashboards, you’ve no doubt heard of KPIs. Key Performance Indicators are metrics that are considered to be critical to the success of your business. In the simplest of terms, a KPI:
• Is measured frequently
• Is actionable
• Is understood by all members of the staff
• Has a significant effect on the organization
• Is not financial in nature
• Is often leading or “forward-looking”
• Has a profound effect on business performance
A lesser known term is the KRI, or Key Result Indicator. A KRI measures one of the key outcomes from your business activities. It tells management if the organization is executing successfully, but it doesn’t provide any insight or direction into the actions required to improve the result. KRIs are often confused or mislabeled as KPIs because the differences are not well understood. Here are some properties of KRIs that will help you identify them:
• Not easily actionable
• Frequently financial in nature
• Lagging in nature or “backwards-looking”
• Are of great interest to shareholders
There are several techniques you can use to identify your organization’s KPIs and KRIs. Most executive or shareholder reports are full of RIs (Result Indicators) and KRIs – including profitability, market share, new contracts, renewal rates, etc. Whether a metric is an RI or a KRI depends on the priorities of each business, but generally speaking, KRIs are the most important indicators of an organization’s overall health. KPIs are a bit harder to identify, and typically require a bit of thought. One approach is to list out the critical success factors (CSFs) for your business, and identify which of those CSFs influence the most others. For example, a shipping company might list customer satisfaction, warehousing costs and on-time delivery as critical success factors; since on-time delivery increases customer satisfaction and lowers warehousing costs, this CSF is considered to be strongly influential. KPIs are the metrics used to measure performance of these most influential CSFs. When defined in this way, a positive change in a KPI will have a profound positive impact on your business.
A useful analogy to help you understand the difference between KPIs and KRIs in your organization would be a sports team. The general manager is interested in the overall wins and trophies that a team has amassed, similar to the board and owners of a company. Management however is more interested in how the players are performing and advanced statistics that show them where the team can improve, similar to the coach’s job. The coach is also concerned about statistics that carry significant weight towards the overall success of the team but are difficult to put a number beside, such as chemistry or effort. In this scenario, GM/Owner is concerned with KRIs while the Coach/Management is more occupied with KPIs. Separating the two has a profound impact on the way performance is measured and the way that governance is established.