When it comes to the actions that are critical to business success, organizations want to know which effects are the most important, along with how to measure these effects and successes. If you’ve ever heard references to CSFs or KPIs, these are a kind of shorthand to how those two questions are answered.
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Sometimes the terms Critical Success Factors (CSF) and Key Performance Indicator (KPI) are used incorrectly; this can lead to ambiguity and confusion, but these concepts are crucial for those studying for an ITIL certification and those already in the IT field.
Let’s differentiate these terms, and explore how they can be used to inform an organization about its performance.
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Critical Success Factors (CSFs)
The concept of critical success factors was developed sometime between 1979 and 1981; it’s been refined by many notable researchers over time. Critical Success Factors are the areas in which steps are taken where high performance or success is important—the areas that determine the success of a business.
CSFs are elements that are vital for a strategy to be successful or for an objective to be achieved. These are often used to denote a mission statement, the vision of an organization, or simply for a business strategy. CSFs represent something that has to be in place for an objective/project to succeed—achieving CSFs drives your strategy forward.
These CSFs may be different for every business; however, many are related to finances. Subjects like cash flow and profits, an increase in customers or a decrease in complaints are just a few examples of CSFs a business can use to learn how they can improve productivity, meet market demand, and more.
Key Performance Indicators (KPIs)
Key performance indicators, on the other hand, are measures used to quantify management objectives. They’re accompanied by a target or threshold and enable performance measurement. Interestingly, KPIs are derived from CSFs.
Simply put, a key performance indicator is an indicator of performance. For example, an ITIL KPI indicates whether performance is good or needs improvement, which is basically determined by measuring against a specific KPI’s threshold. KPIs indicate a defined performance level required to achieve a factor or set of factors critical to the success of an objective.
If, for example, the critical success factor for an IT department is the restoration of normal service, the KPIs that can flow from the CSF may include:
- Average Handle Time (AHT)
- First Call Resolution (FCR)
- Average Wait Time (AWT)
Similarly, if the critical success factor for the collections department is to ensure high debt recovery, then the KPIs they would focus on might include percent collection against total outstanding, percent collection in various aging buckets, etc.
Threshold indicates acceptable performance on a KPI and adds definitive value to key performance indicator (KPI). For example, an “indicator” of the size of a table would be that it could fit a small pool table on it or that it’s large enough to seat six people. It is indicative of its size but doesn’t measure whether or not it meets the requirements.That’s denoted by quantifying the size; for example, a 3 feet by 6 feet table, which becomes the threshold for acceptance.
The whole purpose of using KPIs is to identify certain metrics and define thresholds for those metrics that indicate levels of performance. These levels of performance are then used to indicate achievement of CSFs, which are also measurable, but typically only have binary values—yes and no. The whole point of a CSF is to be able to say, “Yes, that factor has been realized.”
KPI = customer satisfaction (quantifiable, follows an approach to measure) + Threshold = > 70%
KPI = resolution score (quantifiable, follows an approach to measure) + Threshold = > 80%
KPI = net customers added (new customers less disconnections) + Threshold = 1,000 in 30 days
It’s important to note here that the definition of measurement unit may be different and adapted by the organization / department / industry differently, as well as include many dynamics.
Comparing CSFs with KPIs
In the examples above, customer satisfaction for a sample can be measured as a result of a number rating the customer attaches to a particular question(s) on a survey form, calculated by averaging the rating customer attaches to each question, or measured on a qualitative scale and then converted to numbers.
Similarly, definition of case resolved may include measuring repeat contacts by the customer over a period of time post the first contact, 24 hours, 72 hours, 7 days, (and so on); exclusion of certain categories of customers, or simply measured differently using contacts by an individual customer’s telephone number rather than by cases logged by the service department.
Objective = I wish to drive from place A to place B in 5 hours
CSF = access to transportation, driving skills, affordability, availability of fuel, driving conditions
KPI = was the trip made in 5 hours
Threshold = 5 hours
Objective = Higher customer retention
CSF = efficient after sales service, quick turnaround time, less waiting time, transparency in bills, etc.
KPI = customer satisfaction score > 70%, resolution score > 70%, Average Handle time < 10 minutes
Threshold = > 70%, < 10 minutes
Objective = Increase profitability
CSF = Higher sales, lower outstanding debt, lower costs
KPI = debt outstanding < 5%, Increase in sales > 10%, Average revenue per user > $16
Threshold = < 5%, > 10%, > $16
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