The success of a business enterprise depends on the timely evaluation of the goals and objectives. Every enterprise has specific ways to evaluate its success in achieving its goals and objectives. KPI and KRA help to measure the performance of the business. The complete form of KPI is Key Performance Indicators, and KRA full form is Key Responsibility Area. KPI helps to measure the productivity or success of a business enterprise. Otherwise, KRA measures the performance rate of responsibilities assigned to each employee within the organization. It is essential to evaluate both KPI and KRA for the effective management of the company. KPIs may have different results for companies or business organizations based on the objectives and goals.
Did you know?
You can measure KPIs using tools like Google Analytics, Tableau, and Klipfolio.
What is KRA?
KRA full form is Key Responsibility Area. It helps to evaluate the performance of the employees imposed by the organization at the beginning of their careers. KPI provides management an idea regarding the contribution of the employees. The Key Responsibility Areas of an employee are based on the roles and functions imposed on the employees by the particular department of the company. It helps the business to fulfil its objectives by helping the employees to reach their goals.
Key Parameters of KRA
Companies must focus on a few parameters while assigning Key Responsibility Areas to the employees. The management team of an organization should consider the following parameters:
Express your thoughts to your employees before determining anything. It would help if you informed the employees of the areas of their responsibility. Employees should not doubt their functions and responsibility for the organization's overall progress. To inform the employees of their responsibility well, you can allow them to determine their KRA. It will help them to take active participation in your organization apart from developing an emotional connection with the organization. When you involve yourself in active communication with your employees, you will be aware of the area of interest to your employees. It will help you to assign responsibility accordingly.
Before assigning Key Responsibility Areas, you must evaluate the educational qualification, experience, skills, and interest. You must go through the individual's resume to collect all this information. Before outlining any responsibility for a particular employee, you should go through all the details in their resume. It will help you to assign the appropriate tasks or responsibilities for a definite employee. Before assigning any KRA, you should discuss all the information with the employees regarding their past performances, skills, and experience in a particular field. The more you will be aware of your employees' professional expertise, the easier it will be for you to decide on a particular responsibility for your employee.
Ready to Accept the Role
You will have to ensure that the employees do not doubt the responsibility you have imposed upon them. The management team's critical responsibility is to ensure that employees are happy to perform their responsibilities. You should record all the terms and conditions on a document when assigning KRAs to your employees. Without documenting the records, you cannot make sure that these are fully reliable.
What is KPI?
The full form of KPI is Key Performance Indicators (KPIs). KPI plays a significant role in measuring the performance of the whole business enterprise. It evaluates the success and productivity of the whole organization. These performance indexes measure the organization's and employees' overall performance, and it helps to measure the performance of the employees against the duties.
KPI for Organisations
Organizations uses KPIs to track revenue, profit, loss, cost, or sales volume. Organisational KPIs also include customer lifetime value, retention, and satisfaction of customers. Some other KPI metrics are the feedback of customers on the quality of products, services, employee satisfaction, etc.
KPI for Employees
Key Performance Indicators for employees depending on the job role and the type of department. The individual growth of the employee will be based on the performance of both departmental and individual growth. It is the best way to encourage the top performers by providing rewards and to push the underperformer by giving feedback.
Types of KPI
Different types of KPIs help to determine the different performances of business organizations. These are:
Source of Income
The income source metric, KPI, lets you know the sources of revenue and the performance of each revenue. Companies use this KPI to calculate the revenue generated per client or product.
Growth of Revenue
This type of KPI evaluates the performance of sales over some time. It helps to measure the profitability of a business, and it helps to know both positive and negative sides so that a business can learn the lesson and improve itself.
Working Capital Money
Working capital is the sum of money that helps to perform day to day affairs of the business organization. A KPI determines if it has enough funds to carry out all business operations.
Profitability in a period
This KPI helps the company determine the profit and loss of its business over time. It helps to keep a record of the profit and loss of the business. It is helpful to evaluate the business over a period which helps to reduce the expenses.
Difference Between KPI and KRA
There are some significant differences between KPI and KRA, which have been mentioned in the table below:
KPI full form is Key Performance Indicators
KRA full form is Key Responsibility Area
KPI helps to measure the level of business to achieve the desired goal
KRA requires effort to achieve the desired goal
KPI helps to measure the performance of a product, service or business in the market
KRA determines the area to achieve a high value for the organization
It measures the system and entities
It measures the specific actions directly
Ways to Measure KPI
A business organization will have to measure KPI by identifying the goal of the metric, the timeframe of the goal, and assuring that the metric is met. There are some other specific ways to measure the KPI
Objective Should Be Specific
The objective of the KPI should be unambiguous. Who, where, when, what and why should be clear.
It Should Be Measurable
Businesses can keep track of their progress and observe their performance. This means KPI can help the business measure the changes, whether an indicator has increased or decreased.
The objective that the company sets must achievable or it defects the purpose of setting KPIs. Planning to increase sales by maximum effort has not achievable effort. Whereas planning to increase sales by 10 percent backed by data strategy is an achievable objective.
Objective Should Be Time-Bound
The organization should achieve the objective within a specified time limit which leads to committing to a deadline. This can be multiple parts, with 25 percent completion by such time and the final deadline.
Importance of KPI
KPIs is essential for any organization. Some of the reasons for it are:
- KPI helps the business know whether its operation is in the right direction. It helps to determine whether the business strategy is working well.
- It also helps to encourage the employees by allowing them to be focused by measuring their progress.
- KPIs help to make better decisions in the business by providing accurate information. Based on this information, the business can decide where to invest time and money.
- With the help of KPIs, an organization can measure how much improvement a business has gained over time.
- It helps to find out areas where improvement is necessary.
Process of Writing KPI
KPIs help to track the goals and objectives of the business. The process of writing KPI has been mentioned below:
KPIs begin with the understanding of the strategic objective of an organization, and the objective should have the capacity to measure within the specified time limit.
After determining KPI, the success criteria for each objective can be defined.
If a business organization wants to increase revenue within a specific time limit, it has to
-Expand the number of customers
-Increase sales every year
-Reduce additional expenses
Questions on Key Performance
Creating some questionnaires will help an organization determine some definite answers. Some of these questions are:
- How to measure the improvement?
- How to define progress?
- What is the method of measuring the improvement?
- How can a performance achieve the goal?
Collection of Data
Sometimes additional information also helps to decide various essential factors. Additional information includes trends in industry, demographics, conversion rates, and evaluation of competitors' performance.
How Should KPIs be
KPIs should have the quality to answer the following questions:
- How can we measure the improvement?
- What is the outcome?
- Who will be responsible for the outcome?
- What are the criteria to achieve any outcome?
- Are the KPIs measurable?
Both KRA and KPI help the overall performance of an organization, and KRAs help to evaluate the performance and improvement of an employee. Where KPI helps to determine the overall performance of a business organization, both play equal roles while leading a business to overall success.
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