How to Develop KPI

KPI or key performance indicator is a set of targets to be achieved in certain period of time by the Organisation, Department, Division, and employees. This article is about to develop KPI for a department.

1. Formulate Department’s Objectives

A manager of the department must formulate the objectives of his department. The department’s objective should be in line with the organisation’s vision, missions, strategies and objectives. The KPIs for the department are the normally the KPIs for the manager.

2. Component of KPI

The manager should now the components of KPI. KPI is comprised four components. There are (i) Objective, (ii) measurement, (iii) target, and (iv) initiative.

(a) “Objective” tells what the department want to achieve. Example: to increase deposit, to increase customer satisfaction, to increase profits, to send staff for training, to reduce expenses and to improve loan processing.
(b) “Measurement” is what measurement we use. Example: Percentage, number of days, dollars, and kilometer.
(c) “Target” is what to achieve and “when”. Example: increase deposit growth 20% this year; and to reduce customer waiting time from 5 minutes to 3 minutes within 2 months.
(d) “Initiative” is a set of actions to achieve the target. Examples: (i) Improve customer service (ii) Increase promotion (iii) reduce lending rate (iv) to increase staff training.

3. Cascade the KPIs

The Manager should cascade his KPIs to his subordinates. Let say, if the manager’s KPI is to achieve $20 million value of loan, how does his KPI be translated to 5 marketing assistants? In this example, KPI for each marketing assistant is $4 million! So, the achievement of the manager’s KPI is the achievement of his subordinates’ KPIs. The only different is the function. The function of the manager is to lead his subordinates whereas the function of his subordinates is to meet customers.

4. Monitor the KPI

The KPI should be monitored regularly, say weekly or monthly. Normally a tracking system is develop to monitor the achievement of KPIs of the department (directly the manager) and his subordinates.

Achievement of KPI can be rated into scales. This is an example:

4=exceed requirement
3=meet requirement
2=does not meet requirement

Use of KPI

Achievement of KPI is used by a manager to give reward to his subordinates such as bonus, letter of recognition, send staff to oversea trip, and yearly increment and promotion.

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3 Responses to “How to Develop KPI”

  1. cbenc12 Says:

    very useful articles u have there! thumb up!

  2. Jonathan Says:

    While I use different words, I agree in large part with your post. See, for example, Specifically, the scales (or grades) can be much more flexible than 1 to 5. Also, you might be interested in KPIs with multiple targets:

  3. ngo Says:

    Tks very much for your useful post.

    Other sources about KPI, I think also useful


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