What are key performance indicators?

What is a KPI?

Key Performance Indicators (KPIs) are metrics used to measure performance and drive the achievement of strategic objectives across various business activities. In engineering management, the proper KPIs track progress and facilitate informed decisions to measure progress toward business goals. At its core, a KPI is a measurable value that showcases the efficacy of a company in attaining its key business objectives. Organizations use KPIs at different levels to evaluate success, from monitoring website traffic to keeping an eye on time-to-close. 

High-level KPIs measure overall business performance, while low-level KPIs delve into performance metrics in departments like sales, marketing, human resources, etc.

How do KPI differ from goals and objectives?

While all KPIs are metrics, not every metric can be classified as a KPI. Additionally, KPIs should be distinct from goals or benchmarks. To achieve the desired results in any context, organizations should clearly distinguish between goals, KPIs, and objectives:

Goal: The outcome you aim for, such as: "boosting sales."

KPIs: The metrics that indicate your progress towards the goal, like monthly sales volume, customer retention rate, or website traffic.

Objective: The precise value or standard you aim to achieve in relation to your KPIs, such as reaching 10,000 units sold monthly, achieving a 90% customer retention rate, or drawing 50,000 visitors to the website each month.

While the general principles of KPIs apply across various business sectors, their implementation can vary widely based on specific roles and departments.

Importance of KPIs

1. Focus: KPIs help organizations understand what's essential by aligning everyone on strategic objectives to dedicate their time and resources.

2. Measurement: "If you can't measure it, you can't improve it." KPIs provide benchmarks, helping businesses track progress toward their desired outcomes.

3. Informed Decision Making: With KPI dashboards and KPI reports, stakeholders can make decisions informed by data, not guesswork.

4. Alignment: Clear KPIs means multiple teams can take on differing goals while striving towards the same objectives.

5. Accountability: With clear KPIs, teams and individuals can take responsibility for their performance and results.

Characteristics of Effective KPIs

When crafting KPIs, it's crucial to ensure they are actionable and provide genuine insight. A classic example of well-structured KPIs is the SMART framework, where each key performance indicator is Specific, Measurable, Achievable, Relevant, and Time-bound. This approach ensures clarity, feasibility, and relevance in tracking performance against objectives.

1. Specific: Directly linked to strategic planning, organizational goals, and objectives.

2. Measurable: Presented in numbers or percentages. (Ex. conversion rates or net profit margin)

3. Achievable: Realistic and attainable within the given timeframe.

4. Relevant: Pertinent to the department or individual responsible.

5. Time-bound: Includes a clear timeframe, be it daily, weekly, monthly, or yearly.

Types of KPIs

While good KPIs can vary widely depending on your organization's goals, they typically fall into the following categories with some engineering-specific KPI examples:

1. Quantitative KPIs: Measurable and can be presented in number format.

• Example: Number of bugs resolved in a sprint or % customer retention

2. Qualitative KPIs: Related to understanding opinions, attitudes, and feelings and aren't measurable numerically.

• Example: Feedback from peer code reviews, team retrospectives, or customer satisfaction.

3. Leading KPIs: These leading indicators predict the outcome of a process and are helpful for predictions and forecasts.

• Example: The number of test cases in a queue can predict the quality assurance completion time.

4. Lagging KPIs: These lagging indicators offer insight into the past performance of a process.

• Example: Downtime of a system in the previous month.

5. Input KPIs: Measure resources used during the production process.

• Example: Computing resources consumed during a build process or developer hours invested in a feature.

6. Process KPIs: Measure the efficiency of a specific process.

- Example: Percentage of successful continuous integration (CI) builds or code commits without conflicts.

7. Output KPIs: Reflect the output or results of processes.

• Example: Number of features deployed in a release or the performance improvement percentage of a system after optimization.

KPIs for Engineering Managers

Engineering managers bridge the gap between a project's technical and managerial aspects. Ensuring projects are completed efficiently, fostering innovation, and maintaining team morale are just a few responsibilities that fall under their purview. But how does an engineering manager gauge success?

Why Dev Teams Need KPIs

While the broader organizational goals might focus on revenue growth or customer acquisition, engineering managers need performance metrics that reflect their teams' and projects' health, efficiency, and output.

Engineering managers have the challenge of ensuring technical excellence and aligning with business strategy. KPIs tailored for engineering can guide their way.

1. Informed Decision Making: Engineering-specific KPIs offer insights into areas of improvement, resource allocation, potential bottlenecks, employee turnover, or cash flow.

2. Resource Optimization: Managers can better allocate a team's time and tools by understanding team performance and retention rates.

3. Stakeholder Communication: When discussing project timelines and budgets with other departments or upper management, having quantifiable measurements helps convey the team's needs and performance. Financial metrics can further enhance discussions with other departments.

Critical KPIs for engineering managers

1. Cycle Time: This KPI measures the time taken from the start to finish of an engineering task. A shorter cycle time can indicate efficient processes and effective resource management.

2. Bug Rate: How many issues or bugs are reported post-release? A lower bug rate can indicate the quality of the software or product.

3. Code Review Metrics: This could include time taken for code reviews and the number of iterations needed. Efficient code reviews can speed up deployment and improve code quality.

4. Technical Debt: An essential KPI for gauging the amount of "quick fixes" that might need revisiting. 

5. Deployment Frequency: How often is new code deployed for software engineering managers? Regular and successful deployments showcase the productivity of your engineering team. 

6. Employee Satisfaction: Given the demanding nature of engineering roles, monitoring team morale and satisfaction is vital.

7. Project Milestone Adherence: Are project milestones being met on time? Delays can have cascading effects on other departments and the bottom line.

8. Innovation Rate: This KPI might measure the number of new ideas or projects that move past the ideation phase.

Final word

Customizing KPIs to the specific goals of each team ensures alignment with broader organizational goals. For engineering managers, KPIs are tools for ensuring alignment with strategic goals, making informed decisions, and fostering a culture of continuous improvement. It's a tricky balance between setting goals that will challenge the team to achieve success while understanding the team's limitations based on team size and stakeholder expectations.

The bottom line: Setting targets and measuring performance holds excellent potential for significantly improving an organization's ability to accelerate growth, but it must be done carefully to avoid declining team performance.