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Key performance indicators (KPI) measure success in attaining predetermined goals. 

In for-profit enterprises, goals can involve producing the highest quality goods or services while maintaining profit.  KPI might include sales, customer satisfaction, percentage of returning customers and the percentage of defective goods manufactured.

For a publicly traded company, stock price is the best KPI for measuring how well management maximized shareholder value.  Revenue growth is another frequently used KPI, especially for early stage companies.

However, KPIs are not just company wide.  Each department within a company also has its own KPIs. One effective KPI for the accounting department is the receivables turnover ratio, which has a direct impact on collections and the company’s cash reserves. Every department’s KPIs must contribute to the company wide KPIs.

Government entities can have KPIs as well.  An example of a KPI for a school district is the number of students who graduate and go on to college. 

KPIs must be quantifiable in order to be effective. For example, the level of company morale is important, but because morale is very difficult to measure in hard numbers, it’s not considered a company KPI.  Finally, for a KPI to work properly in guiding company behavior, the parties who will be judged by the KPI must have control over the KPI inputs.    

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