Knowledge Base · Measurement
What are the four tests of a good KPI?
A good KPI is relevant to a real goal, measurable with data you can actually get, actionable when it moves, and trackable over time with targets. Chapter 5 of the book sets out the four tests and applies them to a CI maturity score targeted at five points of improvement per quarter.
Chapter 5 of the book argues that the goal is not to measure everything but to measure what matters, and it offers four tests a candidate KPI must pass:
- Relevant: the metric connects directly to an important goal and to something the customer cares about. A sales team's calls made is an activity; the conversion rate from calls to sales is a KPI.
- Measurable: you can track it accurately and consistently, with a reliable way of getting the data. If it cannot actually be counted, it cannot be a KPI.
- Actionable: when the number moves, it triggers specific questions or steps. Customer response time passes this test: too high, and there are named things to try. A number nobody can act on is trivia.
- Time-bound: you can follow it over time and set targets against it. One data point is a snapshot; a trend is a story, and improvement is judged on the trend.
The book's worked example is a maturity score for improvement sites at a large insurer: relevant to the goal of building a CI culture, measurable through the assessment process, actionable because the assessment named the specific weak areas, and time-bound through a target of five points of improvement per quarter. All four tests, passed by one metric.
Run the tests in a team conversation, starting from outcomes: what is the most important result this team is responsible for? Brainstorm the measures of that outcome, then cut the list with the four tests until one to three remain. A short list that passes is worth more than a dashboard that does not.
Related questions
- What is a KPI, and how do I choose the right ones?
- What are vanity metrics, and how do I avoid them?
- What is a CI maturity assessment, and how do I use one?
Source: Continuous Improvement in the Workplace, Ch. 5 (Measuring Success and Ensuring Sustainability).