KPIs, or Key Performance Indicators, are a measurable value that helps organizations track and assess the progress towards specific goals. In this context, KPIs are often used to evaluate the success of various processes, initiatives or products. A KPI could be average revenue per user, session duration, retention rate, cost of customer acquisition, and so on.
KFIs, or Key Failure Indicators, are the opposite of KPIs. They are used to identify and monitor for potential failure or negative outcomes, and help organizations identify early warning signs of critical factors that may lead to undesirable outcomes or not meeting objectives. A KFI could be customer churn rate (percentage of customers who leave), employee turnover rate (percentage of employees who leave), debt-to-equity ratio, product defect rate and more.
The real magic happens when we pair KPIs and KFIs
Interestingly enough, the magic happens when you pair KPIs with KFIs. Former Vice President of Product at Shopify gives an example of this (Chu 2018): teams choose KPIs that directly reflect the positive outcomes they are looking for, but often they forget to consider the negative ways that those outcomes could be achieved. Once they start optimizing for those chosen KPIs, they create output that is actually net bad for the company. He also gives examples of popular KPI <> KFI pairings: revenue growth with maintaining gross margin; adoption of feature A growth, without taking away adoption of feature B; or adoption growth without increasing support load
Applying KPIs to Private Life
You can implement and use KPIs in a few simple steps.
- Goal setting
Much like with OKRs, start by defining a clear and specific set of goals for different aspects of your life. They could, for example, relate to health, personal development, finance, relationships or any other area you find relevant and want to improve on. - Finding metrics
For each of the goals, find a measurable metric that will indicate progress. In terms of health and fitness, a metric could include the number of workouts per week or the number of steps per day. In terms of finance, you could track how much money you save per month or spend on different categories. - Setting targets
Set realistic, quantifiable targets for each metric. For example, taking 10,000 steps per day, or saving X amount of money per month. - Implement KFIs
Don’t forget about the KFIs. They are a great sanity check and you should remember to track them. A KFI could be a number of missed workouts or deviations from your recommended training plan or diet plan. Don’t forget to pair up KFIs – this can be especially important. Let’s take personal finance KPI for example. My goal is to save X amount of money per month, but maybe there are categories that I don’t want to neglect, such as investment or education. Otherwise, I could say I’m saving the desired amount of money, but in the big picture, I just stopped paying for education or stopped investing. In the case of tracking calorie intake, much like with finance, I might need to limit the type of foods, otherwise, I may eat within my calorie limits per se, but have a diet that consists of unhealthy food. - Track, analyze and adjust
Regularly track, analyze and note your progress across different metrics. Adjust accordingly – maybe you need to change your routines to walk more, or maybe you need to adjust your goals (sometimes we set overly ambitious or unrealistic goals). - Celebrate your wins, rinse and repeat
Look at your progress, and celebrate each win as this gives you additional motivation. Learn from your experience so far, both from wins and failures, adjust as appropriate, and keep up the good work!
Chu, Brandon “Product Management Mental Models for Everyone.” The Black Box of Product Management, 19 Aug. 2018. https://blackboxofpm.com/product-management-mental-models-for-everyone-31e7828cb50b