A disadvantage of a KPI is defined as an unfavorable result of tracking or measurement that impedes success. These typically require corrective action to ensure that business objectives are achieved. One disadvantage of KPI implementation is that not every KPI is objective. Subjective KPIs—although often critical metrics—are more difficult to implement. These include such measures as the customer experience. Used incorrectly, information based on opinions can be misleading, distort data, and cause misinformed business decisions down the line.
Another is simply focusing on the wrong KPI. This can reduce the quality of work or negatively impact service levels, as employee goals aren’t aligned with ideal outcomes. A narrow concentration on cycle time, for example, can jeopardize quality. Your work products may be finished faster, but that’s no help if half of them have tons of errors or defects.
Problems caused by hastily implemented KPIs:
Ambiguous KPIs – Key performance indicators that lack clear definitions and parameters fail to provide information that supports decision-making. KPI definitions for the same measurement that vary based on the department or employee cannot effectively compare performance and identify improvement opportunities.
Data Manipulation – Some KPIs measure inputs, such as the Number of Incoming Calls for a call center. These, however, are subject to easy manipulation. For example, a call center rep could increase the number of calls handled by simply hanging up on customers. That would obviously increase the rep’s performance for this KPI, but it would also drastically reduce customer satisfaction. KPIs must be balanced to provide an accurate view of overall performance.
Employee Confusion – Employees need to understand their KPIs. As KPIs are implemented, make sure that everyone knows precisely what is being measured, as well as how and why. Educate your employees about the goals of KPI implementation and how to interpret and improve their performance.
Wasted Investment – Implementing, monitoring, and reporting KPIs is an investment. But it can be wasted if management doesn’t effectively follow up on the results. Targeted follow-up is crucial for improving team and individual performance and ascertaining whether targets need to be adjusted. Measurement with no plan to improve simply isn’t worth the time or effort involved.
KPI Overload – The “key” in key performance indicator means “critical to business operations.” More isn’t always better. Make sure that the volume of KPIs for any particular business group or process remains reasonable Tracking hundreds of KPIs would not only be taxing for management but also counterproductive – and expensive. Every KPI being tracked costs time and money to maintain.
Data Integrity – Data must be recorded and maintained accurately. Ideally, KPIs should rely on a stable raw data feed. Data-entry errors or unexpected changes to performance data will reduce confidence. Employees may well feel that they have no control over their performance and that the KPIs are arbitrary.
Narrow Scope – An excessive focus on financials can generate an obsession with short-term earnings. Consequently, long-term benefits, such as customer satisfaction levels, can suffer. KPIs should provide a balanced and comprehensive view of business operations.