KPIs or Key Performance Indicators are measurable indicators used by a company or sector to compare and evaluate performance in achieving strategic and operational objectives. KPIs in Project Management differ depending on the company's or industry's performance criteria or priorities.
What Are Project KPIs?
KPIs in project management are several particular measurement methods that indicate how effectively teams are reaching specified targets. KPIs for project management are typically established during the project's early stages. They reflect the organization's primary project concept and establish project commitment across administrative divisions.
While each team has various duties to perform, they all contribute to the KPIs individually. Understanding the use of KPIs in project management can aid in establishing team synergy and give a structure for the information required to track corporate project success.
KPIs generally fall under these four categories.
This ensures that the project is completed on time—and if it is not on track, monitoring where it has gone off rail is critical, so there is always a projected completion date.
Is the project staying under the allocated budget or equal to it, or is it exceeding the pre-established budget costs?
Assessing whether the project is progressing as expected, maintaining good quality, and determining if all stakeholders and teams are satisfied with it.
Assessing if the project is being managed effectively by ensuring that the time and money spent on it are utilized efficiently.
What Makes a Good KPI for Project Management?
The most significant performance goals across all facets of team involvement in a project are represented by key performance indicators. Effective KPIs in project management should include the following:
- Before the project begins, all parties must agree on the KPIs
- They should be relevant to the intended audience
- They should contain measurable metrics that can be shared and reviewed across divisions
- They should be routinely measured
- A foundation for making key decisions during the project
- Should be aligned with the project goals
- Realistic, cost-effective, and customized to the culture, limits, and time frame of the company
- Coordinated with organizational efforts
- Reflective of a company's success factors
KPIs are an important project management tool for attaining organizational success. Keeping track of precise data from various teams can help determine where more guidance is required or where incentives, plans, and other resources, like training, should be provided.
4 Tips for Creating and Using Project KPIs Effectively
Once it is decided which KPIs will help the team assess performance, some best practices should be followed to track them.
Make Your KPIs Clear and Focused
KPI templates for project management can be useful, but the most important thing is that KPIs should be S.M.A.R.T.
S - specific,
A - attainable,
R - realistic, and
T - time-based
Choose Your Measures With Purpose
It is recommended to track only a few key metrics—those most significant to your goals. If you can't explain why a specific KPI is significant, that's reason enough to drop it. Remember, the more KPIs you use, the more time it will take to report on them.
Always Include a Target.
Organizations that are just getting started with KPIs may believe they do not have enough historical data to set an accurate target. You can instead select just those KPIs for which you can use industry research or previous data to make an educated estimate on a target.
Know When to Abandon a KPI
If you're not using a KPI while making organizational choices or holding strategy meetings, it could be an indication that it's not worth tracking. You can waste too much work tracking something that isn't adding value.
Why Use KPIs?
KPIs in project management is used to measure the efficiency of performance. For accuracy, realistic process reflection, and success in achieving the outcome. KPI can reliably, consistently, and precisely monitor the outcomes of a change.
How to Define Project Management KPIs, and Make Them Work Harder With Smart Goals
Here is how you can ensure that your KPIs in project management are S.M.A.R.T. goals.
1. Specific: Clearly Defined
Examine the key performance indicators (KPIs) you have identified.
Ensure that they are clear since they cannot be measured adequately if they are too ambiguous. This will result in immeasurable success and missed deliverables throughout the project lifecycle, and the objectives will not be achieved.
2. Measurable: Using Accurate Data
Data determines whether or not KPIs in project management are successful.
Developing KPIs is futile if you are gathering data from various sources or making a guess to estimate the conclusion. Thus, ensure that all of the collected data is in sync so that the KPI is quantifiable and easier to report on.
3. Attainable: Can Be Achieved
The KPIs should be achievable by the project teams.
If the KPIs are excessive, they will be overlooked, and team members will not be motivated. The morale will suffer in the long run, and nothing will be evaluated.
4. Realistic: Relevant to the Objective
KPIs must be appropriate for the project.
When numerous team members add KPIs, irrelevant KPIs may begin to creep in. Check that your KPIs correspond with the project goal regularly to keep the project on track.
5. Time-Based: Actionable
Projects are not always linear. So, while establishing KPIs, they should also follow a similar structure. KPIs in project management should be actionable at any project stage while still setting specific milestone deadlines. The KPIs should guide the team on the right path, even if they diverge from what was planned at the beginning.
10 KPIs for Project Managers and Why They Matter
While the project managers focus on completing a project within budget and on time, shareholders monitor to determine if the results meet their strategic objectives. KPIs connect strategic objectives to project goals, lowering attrition among the team, project managers, shareholders, and customers.
KPIs can be an effective tool for controlling. The project manager evaluates periodic progress against predetermined benchmarks such as the ones given below to assess whether the project is on track.
Cost Performance Index
The cost performance index (C.P.I.) measures a project's financial management efficiency. C.P.I. ratios estimate the following:
- The project is underperforming when C.P.I. is less than 1.
- Performance is on target if C.P.I. is equal to 1.
- Performance has exceeded expectations if the C.P.I. is greater than one.
C.P.I. varies throughout a project due to changeable expenses such as salary and input pricing. Using C.P.I. data, project managers can make choices that impact project completion within budget.
The formula for C.P.I.: C.P.I. = Earned value (E.V.) / Actual costs (A.C.)
Budget variance, or B.V., is calculated regularly to determine the difference between expected cost (earned value) and actual numbers. It is used to track expenses throughout project tasks, assisting the manager in determining how to allocate the remaining resources for optimum efficiency. It is also known as cost variance (CV). The results of B.V. mean the following:
- Positive means the project is below budget
- Zero means the project is within budget
- Negative means the project exceeds the budget
The formula for cost variance: BV/CV = Earned value (E.V.) – Actual value (A.V.)
Profitability (By Task, Customer, and Project)
Project managers should determine a project's profitability by analyzing the returns to determine if a project is feasible for the organization. It enables them to abandon ineffective initiatives, abandon loss-making operations, and attract more profitable clients. Profitability should be judged on three different levels:
- Profitability by task quantifies the activities that generate the highest earnings for the project. Tasks that do not generate profit can be eliminated or improved to improve profit performance.
- Client profitability selects customer projects, allowing managers to focus on the more profitable enterprises or negotiate higher billable rates with clients.
- The profitability of a project can be determined by measuring the difference between the billable amount to the client and the total expenses made.
The formula for profitability: Profitability = Billable amount – Total costs
Billable amount = (Billable hours X Billable rate) + Billable expenses
Total cost = (Hours spent on project X Labor rate) + All expenses
Here is what the results determine:
- If the balance is greater than 0, then the project is profitable
- If the balance is equal to 0, the project is at a break-even point
- If the balance is less than 0, then the project is generating a loss
P.V. is a key component of the cost management strategy that tries to establish a standard monetary performance against selected project milestones.
The formula for Planned Value is: P.V. = budget at completion (B.A.C.) X Planned percentage complete
B.V. or billable utilization compares the time spent creating revenue to the predicted revenue, giving project managers a means to measure performance throughout task execution.
To limit use, the project manager might establish baselines. While both benefit the firm, maximal utilization may result in team burnout, while limited utilization makes it more difficult to remain profitable.
The formula to calculate billable utilization is as follows:
Billable utilization = (Number of billable hours / Number of available hours) X 100%
Schedule Performance Index
S.P.I., or schedule performance index, is a tracking indicator that is used to compare the completion status to the schedule. It removes uncertainty and enables the project manager to make timely modifications to maximize resource efficiency.
The formula to calculate S.P.I. is: S.P.I. = Earned value (E.V.) / Planned value (P.V.)
Employee Churn Rate
An employee churn rate indicates the percentage of teammates who have left the organization. A high staff churn rate may be perceived as solely an H.R. or management issue; however, it is not. High employee attrition has a detrimental impact on project efficiency.
The formula used to calculate the employee churn rate is:
(Employees who left ÷ Average number of employees) x 100
Planning the resource capacity enables project managers to allocate the resources most needed to maximize value. Effective metrics for resource capacity can also help with the following:
- Evaluating and eliminating underskilled resources
- Adjusting project timelines to accommodate current capacity
- Allowing resource rotation among activities for optimal output
- Ensure maximum quality is produced
- Reducing employee churn by assigning workloads to qualified personnel
- Conflict avoidance and improved conflict resolutions
- Preventing the overallocation of resources
- Identifying skill gaps and planning for recruitment or upskilling.
To estimate resource capacity, the project manager must be aware of job priorities within the given team. Portfolio-based (many projects) or project-based resource capacity planning is also possible.
An appropriate capacity estimate should include breaks and hours spent away from the actual duties, such as attending meetings and subtract this from the total number of hours available.
Resource capacity = Available work hours per day X total number of workdays allotted to the project
On-Time Completion Percentage
The project's on-time completion rate measures the number of projects completed on schedule. It allows the project manager to monitor and enhance efficiency. A good completion statistic reveals patterns that assist the organization in recognizing problems that make it difficult to finish a project within schedule. Here is how you calculate the on-time completion rate:
On-time completion rate = (Total number of projects completed on time / Total number of projects) X 100%
Planned Hours vs. Time Spent (By Task or Project)
The indicator measures the task progress by accounting for the time difference between the intended and actual execution times. The project manager can monitor each employee's progress against the established targets with the results meaning the following:
- A difference greater than 0 indicates good progress
- A difference below 0 indicates exceeded timelines
Time management assists in the alignment of tasks and also saves company resources.
Activities must be done as soon as possible for a project to achieve its deadlines. If actual hours spent surpass planned time, it indicates either an underproductive employee or the projected time was underestimated. Here is how you can calculate planned vs. time spent
Planned vs. time spent = Estimated time – Actual time spent
Types of KPIs
Several types of KPIs in project management can make monitoring and execution of a project easy for project managers and stakeholders. These KPIs are:
They evaluate a business process's efficiency or productivity. For example, how long will it take to deliver a product?
They track assets and resources that have been invested in or utilized to produce business results. Examples include expenses related to research and development, employee training funds, or raw material quality.
These assess the non-financial and financial outcomes of company activities. For example, revenues.
They track operations that could have a substantial impact on future performance.
This is a kind of estimation that reflects the success or failure of an event after it has occurred. Most financial KPIs, for example, measure the result of previous activity.
As a measure of performance, it reflects the total result or impact of the business operation in terms of obtained benefits. Customer retention and brand recognition are two examples.
These could be descriptive features, properties, opinions, or traits. Employee satisfaction surveys, for example, provide a qualitative report.
These are measurable characteristics obtained by measuring numbers. Because quantitative data is most commonly used in measurement, it serves as the foundation for most KPIs. Units per person-hour are an example.
Characteristics of a Good KPI
These are the characteristics of good KPIs in project management
- KPIs are always aligned with organizational goals.
- The management decides upon KPIs.
- They are the key indicators of the organization's desired performance.
- Key Success Factors or K.S.F.s change only when there is a major change in business goals.
- Key performance indicators vary as goals are met, or management priorities shift.
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While the KPIs mentioned above are typical and effective indicators for monitoring projects and their progress, they may not always suit your company's requirements. Learn more Project Management concepts with our PGP in Project Management. Attend live online interactive classes, masterclasses from UMass Amherst, Harvard Business Publishing case studies, and capstone projects. Sign-up now!