CHAPTER 1 - Terms

From the book organisational-abilities

Measurements, metrics and KPIs

Often the terms measurements, metrics and KPIs are used interchangeably, however there are some differences. Measurement is defined by Douglas W. Hubbard in his excellent book “How to Measure Anything”:

Measurement: a set of observations that reduce uncertainty where the result is expressed as a quantity. [1]

A measurement should provide us with information that helps us decide what to do next.

As an example, lets say that managers in one organisation want to improve staff retention. They carry out a set of actions, measuring staff turnover before and after. If turnover has reduced, then they have an indication that what they have done has worked, they either keep doing it, tweak it or do nothing. If it hasn’t, then they know something has to change.

Although often used interchangeably with measurement, a metric is the product of a calculation, a method for measurement or a measurement from a standardised system. For example, a telecoms operator uses a customer churn metric to measure how well they’re doing at retaining customers (number of churned customers / total number of customers).

The term key performance indicator (KPI) refers to measurements or metrics that are specifically used in relation to business related objectives. They signal that this is an important measurement for success. Going back to our previous example of the customer churn metric, if this is something the company will want to move the needle on, it will be considered a KPI.

metric kpi and measurement relationship diagram[1] Hubbard, Douglas W. How to Measure Anything: Finding the Value of ‘Intangibles’ in Business. Hoboken, N.J: John Wiley & Sons, 2007. p21

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