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Best Approaches for Developing KPIs for Business Intelligence

I recently asked a provocative question in one of my weekly #BIWisdom tweetchat sessions: In the age of discovery and cognitive BI, are Key Performance Indicators (KPIs) going to remain relevant?

Someone tweeted a quick answer: If you dont have KPIs, how do you know if youre succeeding? Another participant commented that most places where she has worked had KPIs and it was sometimes part of the appraisal process. 

Some #BIWisdom attendees who are BI users as well as vendors and consultants shared their opinions about whats wrong with KPIs. They mentioned that the average BI user doesnt understand what makes up a good KPI. And most companies have too many KPIs. Or that KPIs are misused and then drive the wrong results. Someone else tweeted about the problem of KPIs using absolutes and not normalizing and that normalizing KPIs helps prevent irrational goals and the resulting bad behavior that can follow.

I asked for the groups opinions on how to create effective KPIs. Their answers below may serve as a brief overview checklist or framework for developing your organizations KPIs. 

Where do you start?
    You start with the right business users and identify their main problem. 
    Start with one KPI that drives everything else and then expand from there.
    As more line-of-business managers start to measure, add micro Key Value Indicators (KVIs) that roll up under top-level KPIs.

Do you start with goals or data?
    Start with the users main goal. Data limits value.
    Existing data may not support the goal.
    Start with goals and use benchmarks to help set targets.
    KPIs need to align to objectives or goals. As an example, the KPIs for the objective of good design might be task, visual appeal and completeness.

What is the overriding guideline?
    KPIs need to be individually actionable.
    KPIs must be dynamic because how you measure your business changes over time. Whats relevant now might not be relevant in 18 months.
    KPIs should be updated regularly to align with shifting objectives. A KPI can remain the same, but the target might change. 

Bottom line: KPIs are more than a way of measuring success with business intelligence. They also serve as a very effective tool for defining and communicating the BI strategy.

Over the years, I've noticed two issues that can lead to ineffective KPIs. First, KPIs need to be unobtrusive, natural and intuitive; otherwise, they can end up as another job for users to do. Second, organizations that have been previously unsuccessful with BI tend to use prepackaged apps, meaning a vendor has defined the KPIs for them.

In my opinion, creating good KPIs require guidance. Thats why organizations often engage consultants to help with the process. 

Its no secret that Im a big proponent of BI Competency Centers (BICCs), and Dresner Advisory Services conducts an annual market study to assess the management and results of BICCs. A BICC is a group within an organization charged with defining, delivering, documenting and promoting best-practices in business intelligence. Another way of thinking about it is that a BICC organizes BI initiatives for success. Ideally, the BICC is the champion of KPIs that really matter.

Howard Dresner is president, founder and chief research officer at Dresner Advisory Services, LLC, an independent advisory firm. He is one of the foremost thought leaders in Business Intelligence and Performance Management, having coined the term “Business Intelligence” in 1989. He has published two books on the subject, The Performance Management Revolution — Business Results through Insight and Action, and Profiles in Performance — Business Intelligence Journeys and the Roadmap for Change. He hosts a weekly tweet chat (#BIWisdom) on Twitter each Friday. Prior to Dresner Advisory Services, Howard served as chief strategy officer at Hyperion Solutions and was a research fellow at Gartner, where he led its Business Intelligence research practice for 13 years.

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