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22. KPI in All Industries

22.1 How to Read a KPI

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A KPI answers three questions. If you cannot answer all three, it is not a KPI yet.

  1. What it means. The formula in words, including what is in the numerator and what is in the denominator.
  2. Who uses it. A named role: city manager, ward in-charge, plant head. Not "the business".
  3. What action it drives. A decision this week. If the number cannot change a decision, it is a vanity metric.

A vanity metric goes up and everyone feels busy: page views, calls made, events held, new accounts opened, impressions. In each section below, the vanity metric sits beside a KPI from the same rows, so you can see what it hides.

The Excel pattern used in every section:

  1. Type the six fictional rows and press Ctrl + T. Give the Table a short name such as tblRetail.
  2. Calculate each file-level KPI as a ratio of totals, for example =SUM(tblRetail[Delivered sales])/SUM(tblRetail[Delivered]).
  3. Add calculated columns such as =[@Cancelled]/[@Orders] to see the KPI for every row.
  4. Use SUMIFS in both parts of the ratio to get one city.
  5. Format with 0.0% for rates and ₹#,##0 for rupees, and write the denominator in the header.
Do Do not
=SUM(tbl[Cancelled])/SUM(tbl[Orders]) =AVERAGE(tbl[Cancellation rate]) (gives a small row the same weight as a big one)
Wrap a row formula in IFERROR when a denominator can be 0 Leave #DIV/0! on a manager's sheet
Keep raw counts in the Table and ratios in calculated columns Type a ratio by hand into the data

Ravindra Bagale's Tip

Before you say a KPI name in an interview, be ready with four answers: the numerator, the denominator, who looks at it, and what they will do on Monday.