May 30th, 2022

Effective decision making with a KPI system

A KPI system is an excellent source of information about processes. Skillful use of KPIs affects the ability to achieve strategic goals.

https://www.opexity.com/blog/wp-content/uploads/2022/03/youtube.svg

Last update: June 16th, 2025

Decisions made, especially the quality and speed at which they are made, determine whether a company is successful in its field of activity. Decision making is one of the most important, if not the most important, skill of everyone in the organization. Regardless of the place in the structure of the organization.

If you’re wondering why the decision-making process is so important… Then analyze, even briefly, in a few minutes, your workday and write down how many decisions you make per day while performing your daily duties. Now think – what would happen if you stopped making those decisions?

Since decision making is so important to organizations, what can be done to make sure the decisions made are the right ones? How do you make sure that a particular decision is the right one? Is it worth to trust instincts and hunches when making a decision? Or maybe it is your own experience?

One thing is certain – the times when decisions were made in organizations based on intuition are long gone. Now organizations are developing systems to facilitate decision making, such a tool being the KPI system.

“Today, owners and shareholders require a clear and transparent system of organizational management designed to ensure that the direction taken by the organization and the actions taken have been selected and defined using the best available methods.”

- Nesterak, J. Ziebicki, B. "Performance management concept and method"

How to make good decisions?

How to help manage an organization by making good decisions? Peter Drucker gives us a clue, in one of his famous statements: “You cannot manage something that you cannot measure”. Thus, success lies in the measurement of processes that we carry out in the organization, and more specifically in the use of information that we get from these measurements.

So how to know what to measure in order to obtain information valuable to the decision-making process? The answer is simple – from the strategy and strategic objectives of the company. It is the strategic objectives of each organization that define what the organization must focus on to achieve competitive advantage and success in its industry. Thus, the strategic objectives of any organization are the most important indicators of its performance.

Decision makers face the task of communicating, delegating to lower levels of management, and constantly monitoring KPIs.

Effective decision making at the meeting thanks to the KPI system

Managing key performance indicators – thanks to the KPI system

Key Performance Indicators (KPIs) are nothing more than a set of quantifiable measures defined by an organization to support its decision-making process. The data presented through KPIs is used to monitor an organization’s progress toward achieving its strategic and operational goals, as well as to compare its performance to that of its competitors or other companies in its industry.

The father of KPIs is considered to be the aforementioned Peter Drucker, who summed up the issue of linking an organization’s strategy to indicators in a very blunt statement that goes like this:

“Strategy without metrics is just wishful thinking. And metrics that are not aligned with strategic goals are a waste of time.”

- Peter Drucker

A KPI system is the definition of individual goals for specific processes that support, directly or indirectly, the achievement of the company’s strategic objectives.

How do you choose the right metrics?

An appropriate set of KPIs should be defined so that:

it includes indicators of both financial and non-financial nature.
it is possible to conduct frequent measurements of the indicators.
specific responsibilities of individuals and teams for monitoring the indicators are indicated.
the system of calculating specific indicators is clear and understandable for people responsible for these indicators.
indicators are easy to interpret for all employees.

The number of KPIs should be selected in such a way as to ensure that the processes affecting the achievement of the company’s strategic objectives can be properly monitored. Too many KPIs will result in higher costs of measuring and monitoring the indicators and, as a result, will delay the decision-making process. The more information, the longer the process of analyzing results and making decisions becomes. Too few KPIs introduce the risk of overlooking important information, making the decision-making process ineffective.

Building an appropriate KPI system that facilitates making important decisions for the company is a task for process owners. Process managers should build such a system which will facilitate and improve the decision-making process in the organization. The defined KPIs should be systematically reviewed and discussed at Steering committee meetings.

It is worth noting that some KPIs are so universal that they can be successfully applied in most organizations.

Examples of such KPIs are mainly financial indicators, among others:

EBIT (Earnings Before Interest and Taxes) – earnings before interest and taxes, or operating profit. EBIT is used in financial analysis as a measure of financial performance. It can be measured in a specific currency or as a % of company turnover.

Free Cash Flow (FCF) – shows how much cash a company is able to generate after deducting funds to maintain and expand its asset base. This ratio shows a company’s investment potential and ability to pay dividends.

Other examples of KPIs used successfully in many companies include:

Number of days without an accident – an indicator that shows the level of health and safety in the company.

FPY (First Pass Yield) – a product/process quality indicator showing the number of good pieces from a process or group of processes. This indicator is also called throughput yield or first pass yield.

OTIF (On Time In Full) – a process performance indicator showing the percentage of task completion within the declared time and scope. It is also called order compliance indicator. OTIF is often used in logistics and supply chain management.

Capacity Utilization Rate – the degree of occupancy, the use of available resources. It can be applied to material resources (machinery, vehicles) as well as human resources.

Degree of employee satisfaction – shows the extent to which the employer cares about employee morale.

In conclusion, properly selected and systematically monitored KPIs are a huge source of information about processes in a company. However, the success of an organization depends on whether this data is quickly and appropriately used in the decision-making process.

Link to the product:

Key Performance Indicators - KPI

Key Performance Indicators

Learn how to implement and use the Key Performance Indicators system. Measure the achievement of strategic and operational goals with KPIs!

Read more!

Lean

April 13th, 2022

VSM - optimization using value stream mapping

What can be done to limit the effects of the economic crisis? Instead of dismissing people, it's worth looking at the processes inside your organization. Learn about VSM!

Read more!