What is the relationship between critical success factors and key performance indicators?
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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. Read more:
How to become a Certified ITIL® Expert? 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. 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:
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. ThresholdThreshold 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.” ExamplesKPI = customer satisfaction (quantifiable, follows an approach to measure) + Threshold = > 70% Comparing CSFs with KPIsIn 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. Example 1Objective = I wish to drive from place A to place B in 5 hours Example 2Objective = Increase profitability ConclusionGetting ITIL certified can help boost your career in IT. Ensure you are in top shape for the ITIL 2011 exam with Simplilearn’s ITIL® 4 Foundation certification training. Simplilearn also offers a variety of other ITIL training courses, including ITIL Expert programs. If you’re already an ITIL® V3 Expert, you are eligible to take our ITIL® 4 Managing Professional Transition Module Training. Get certified now! How do Critical Success Factors influence KPIs?A business uses CSFs to cause or prompt success, while it uses KPIs to measure it. The purpose of CSFs is usually to make business operations more efficient and increase profits. The purpose of KPIs is usually to track how well a business is fulfilling these goals.
Is a CSF or KPI more specific?In general, KPIs are more descriptive and quantitative than CSFs. For instance, a company can identify CSF as “significant increase sales volume in European markets” and to drive the identified CSF, a KPI can be assigned as “Increase sales revenue in European markets by 10% against last year, by year-end.”
What is the relationship between KPIs and KRIs?The relationship between KPIs and KRIs
While KPIs help organisations understand how well they are doing in relation to their strategic plans, KRIs help them understand the risks involved and the likelihood of not delivering good outcomes in the future. This means KRIs can be the flipside or KPIs.
What is the relationship between Key Performance Indicators and achievement of the operational plan?Key Performance Indicators help define and measure progress toward organisational goals and objectives. If a KPI is going to be of any value, there must be a way to accurately define and measure it. When you develop your operational plan you will define several operational targets.
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