A key metric, also known as a key figure or key performance indicator (KPI), represents a measured value or status that is compared with other key metrics or used for analyses, like monitoring performance or identifying optimization potential. In process mining, common key metrics include cycle time and number, as well as process costs.
What kind of key metrics are there?
There are absolute and relative key metrics. Absolute key metrics are independent and are not related to any other values. These key metrics are either taken directly from existing data or calculated. The three types of absolute key metrics are the individual key metric, the total key metric, and the difference key metric. An example of an individual key metric is number of employees. A balance sheet total is a total key metric. Profit is a difference key metric, because it is the difference between sales and costs.
Relative key metrics are set in relation to or derived from other key metrics. That’s why they can also be called relational key metrics. Relative key metrics can be divided into three types: relationship key metrics, index key metrics, and classification key metrics.
- The relationship key metrics relate two absolute key metrics to each other: for example, sales per department.
- With index key metrics, two key metrics are related to each other, one of which forms the basis. Index key metrics are often used to illustrate a development over time. One key metric is taken as the starting point (usually index 100) and compared with one or more key metrics. For example, sales of products and services via online sales channels were 100% in Year 1 and 150% in Year 2.
- In the classification key metric, we compare part of the key metric with the total key metric. An example of a classification key metric is the proportion of screws in relation to the total production materials stored.
A structure of related, complementary, and supporting key metrics is called a key metric system.
Where can key metrics be measured and used?
In principle, key metrics can be defined, measured, and used everywhere. These can be common indicators, such as return on investment (ROI), or a company or employee can define key metrics that support a specific operation.
Different key metrics are often measured in different areas of a company. For example, marketing and production use different key metrics. Marketing might measure the conversion rate, that is, how many visitors become actual contacts and leads, which wouldn’t be a relevant metric for production to measure. Instead, production would look at metrics like maintenance costs or production volume.
Clearly define which key metrics are meaningful and add value in which areas. Otherwise, you might be introducing inefficiency by measuring irrelevant key metrics.
However, you’ll find that some key metrics are more cross-cutting, like performance of processes, employees, or systems and machines, among other things. Since performance is an important indicator for a company, department, or process’s efficiency and success, it’s a key figure that’s usually measured more broadly.
Key metrics can be used to evaluate areas for optimization potential such as bottlenecks or process problems. For example, you could look into whether a process is meeting a certain key metric, and if not, why. Key metrics are one of the most important orientation and testing factors in controlling.