KPIs in Project Management: How to Track Them?

Once a project is approved and ready to commence, as a project manager, it is your prime duty to ensure that you have a clear objective in mind, stakeholder buy-in, as well as a reliable team of experts in place. One thing you should most certainly keep in mind is the possibility of risks and things falling apart. Things can always go south in the duration of the project lifecycle, even if you have planned the project with utmost perfection. 

When you become a project manager, your prime goal is to see to the successful delivery of the project. The best way to prevent this from going downhill during the course of the project is to keep the KPIs in mind and monitor them regularly. Identify the important project KPIs to keep it on track from inception. KPI full form in project management is a ‘Key Performance Indicator’. Understanding the key use of KPI PMP is a mandate skill for project managers. Taking up online Project Management courses will greatly help you in this feat if you want to pursue project management as a career choice.  

What are KPIs in Project Management?

If you are looking for an appropriate answer to the question "what is KPI in project management”, know that project management ‘KPI’ is an abbreviated term used to describe Key Performance Indicators in project management. It is a quantitative metric that helps project managers determine how the project is performing and if it is on track with the organizational objectives.

A project’s successful delivery is based on preplanned timelines, budgets, quality criteria, and scope. The project KPIs are project performance indicators that provide the metrics relevant to these deliverables. While project managers are entirely focused on delivering a project in a timely manner and staying within budget, shareholders expect to see these results as per their strategic goals. PMO KPIs offer a connection between the project goals and the strategic objectives and help reduce enfeebling relations between project managers, shareholders, team members, and customers.

Project KPIs are key performance indicators for evaluating. Project managers use them as efficient tools of control that help them track the periodic progress of the project against the predetermined targets instead of waiting to evaluate them after completion. This helps Project Managers determine if the project aligns with the objectives.

The whole reason behind using PMO KPIs is to determine ways to achieve project success faster. To become a successful project manager, it is important to know the ins and outs of KPIs, how to integrate them and how to use them efficiently. A Project Management Professional training course is bound to help you in this feat especially if you are aspiring to become a project manager in the near future.

KPIs are a part of valuable data-centric resources that are used to evaluate the factors that drive a project toward its success and are usually presented on a project management KPI dashboard. They help identify the work progress as well as show the areas of weakness. 

Monitoring KPIs helps project managers unravel areas that could potentially lead to project failure and take corrective measures whenever necessary. They are entirely different from subjective project indicators and should not be mistaken for them because KPIs use quantitative data to run a project's diagnostics.

Importance of KPI in Project Management

To define KPI in project management, we can say that they are quantifying performance metrics used to track the progress of a project. There can be numerous PMO KPIs in project management pertaining to the nature of the project. They can also be broken down into many categories to acquire a broader view of the work in progress. Some of the most important KPI project management examples are as follows:

• Timeline 
• Costs 
• Variance 
• Income

Each of the aforementioned fields determines how a project is progressing. They need to be conveyed to the stakeholders and the members of the team handling the project. Adhering to these KPI metrics for project management can come with several advantages during the duration of the project. The highly valued characteristics of KPIs are listed below:

• Quantifiable: In project management, monitoring progress depends entirely on concrete data offered in the form of metrics. KPIs help in examining the overall progress of a project in real currency, hours, or whichever unit is deemed relevant in order to ascertain where and how much of the resources are being used in actuality.
• Objective: Every project comes with a bevy of both external and internal stakeholders, each with their own varying interests regarding the ultimate outcome of the project. Keeping track of and communicating the progress via measurable KPIs makes sure that results are not products of personal biases and pertain to the common interest of all the stakeholders. This helps project managers solely focus on the most important thing: the project's success.
• Communicable: Unlike objective data, KPIs, classified as quantifiable data, leave no space for ambiguity. They enable project managers to convey the progress in easily comprehensive messages that will be understood regardless of where the interests or biases lie.

Therefore, KPIs are extremely crucial tools for project managers. The key points of importance of KPI in project management have been listed below:

• KPIs act as a scoreboard for the health of an organization. They help in monitoring the critical signals that a company indicates during the course of the project. 
• KPIs are highly important in monitoring areas like workers, processes, customers, and revenue. 
• KPIs help in understanding the health and overall performance of a company.  
• Setting the right KPIs will help keep track of the project’s progress regarding long-term business plans and goals. 
• KPIs help prevents mishaps by providing early warning signs to warn project managers every time they nearly fall short of targets. 
• KPIs indicate and predict if the project is on track to meet the predetermined objectives. 
• Companies use KPIs because they significantly help take up challenges and consider other possibilities.

How to Choose the Right KPI for your Business?

Choosing the kind of KPIs can make or break a project; therefore, it is imperative to know which KPI is suited to which project and which sector. There are multiple KPI categories, and as a project manager, you need to know which one is which and how to integrate them into a project. The kind of KPI will also indicate the health of the project during the overall operations enabling project managers, stakeholders, investors, and team members to understand in which direction it is exactly headed.

If you are looking for an answer to the question ‘how to define KPI for a project’ for your business, you need to make sure of the following:

1. Choose KPIs Directly Related to Your Business Goals

KPIs are quantifiable measurements or data points used to gauge your company's performance relative to a goal. For instance, a KPI could be related to your goal of increasing sales, improving the return on investment of your marketing efforts, or improving customer service.

2. Consider Your Company’s Stage of Growth

Certain metrics will depend on what stage your company is in. The critical rate of metrics will be different between startups and enterprises. Companies that are still in their early stage will generally need to focus more on data and metrics that are related to business model validation. More established organizations, on the other hand, are more likely to focus on customer lifetime value and cost-per-acquisition metrics.

3. Identify Both Leading and Lagging Performance Indicators

Before choosing the relevant KPIs, it is essential to know the difference between leading and lagging indicators. It is more akin to knowing how you are doing as opposed to how you performed before. Lagging indicators aren't essentially superior to leading indicators, or vice versa. The differences between the two have been elucidated below:

Leading Indicators	Lagging Indicators
Leading indicators evaluate how likely you are to achieve your future goal. They act more like predictors of what is to come. Examples include sales opportunity age, conversion rates, sales rep activity, and the like.	Lagging indicators help evaluate the result of something that has happened before already. These metrics are used for measuring results because they are entirely focused on outputs. Some examples include total sales of the previous month, total hours of delivered professional services, the total number of new customers, and the like.

4. Focus on Fewer Key Metrics, Rather than an Overflow of Data

While identifying KPIs, the less is more concept is more likely to be positively impactful. Instead of choosing too many metrics to evaluate and report, focus on just a few important ones. Tracking too many KPIs might cause you to become stressed out with the overwhelming amount of data and make you lose focus.

Types of KPIs in Project Management

There are numerous KPIs to choose from when it comes to project management KPI tracking. To ensure the success of your project, make sure you choose the best KPIs for project management. The following project management KPIs PMI are common for most projects regardless of the sector or industry your project is based: -

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1. Profitability    

Determining whether a project will turn out to be profitable or not can be a challenging feat. Project managers are tasked with calculating the returns to decide if a project will positively impact the company on the business front. This KPI enables them to get rid of under-productive ventures, avoid loss-incurring activities, and acquire profitable clients.  

Profitability needs to be evaluated on three levels: 

• Profitability by task helps measure activities that help determine the optimum profits for the project.  
• Client profitability helps filter customer projects so managers can focus more on profitable areas.  
• Profitability for the overall project is the difference between the total incurred expenses to the total amount billable to the clients. 

The general formula for profitability has been elucidated below: -  

• Profitability = Billable amount – Total costs 

were

• Billable amount = (Billable time X Billable rate) + Billable expenses 
• Total cost = (Hours spent on the project X Labor rate) + Overall expenses 

The Profitability KPI indicates the following: - 

• Balance > 0 = Profit 
• Balance = 0 = Break-even 
• Balance < 0 = Loss

2. Planned Value  

Planned value or PV is the cost management plan’s key component. It seeks to assign a criterion for monetary performance against the milestones identified in a project. PV is calculated with the formula elucidated below: - 

Let’s say that a project deadline for completion is in six months and can cost $5,000. In three months, 50% of the overall work should reach completion. The planned value posts this period will be:

PV = $5,000 X 50% = $2,500 

The planned value needs to be calculated prior to the commencement of the work proceedings because it needs to be computed into the schedule performance index and the schedule variance.

PV = Budget at completion (BAC) X Planned percentage complete

3. Cost Performance Index

The cost performance index or CPI helps measure the efficiency of financial management in a project. CPI ratios implicate the following:

1. The project will be regarded as underperformed if the CPI goes below 1.
2. The project will be regarded as overperformed if the CPI goes above 1.
3. The performance of a project will be regarded as on target if the CPI is equal to 1.

CPI tends to potentially fluctuate throughout a project’s duration due to a number of variable expenses like the prices of inputs, wages, and the like. With the help of CPI metrics, project managers can take decisions influencing the delivery of projects without crossing the budget. The CPI formula has been elucidated below:

CPI = Earned value (EV) / Actual costs (AC)

where, EV = budgeted cost of completed work; AC = actual costs incurred

4. Budget Variance

Budget variance or BV is periodically performed to evaluate the difference between the actual figures and estimated expenses. It is also referred to as cost variance or CV and is used to monitor expense items inside the project activities. It helps the manager decide how to allocate the remaining resources to ensure optimal performance. BV outcomes are usually summarized as:

• Zero: The project is within budget
• Positive: The project is below budget
• Negative: Project has exceeded the budget

The formula for calculating Budget variance has been elucidated below: -

BV/CV = Earned value (EV) – Actual value (AV)

5. Billable Utilization    

The ratio of hours available against billable hours to the client is referred to as Billable Utilization. It evaluates the total time spent on the generation of revenue pitted against expected revenue. It helps project managers to measure performance efficiently at the time of task execution. The project manager is responsible for setting the criteria for controlling utilization. Although profitable to the company, maximum utilization can potentially cause an employee to burn out, whereas minimum utilization will make it difficult to stay profitable. 

The formula for calculating billable utilization is elucidated below: -

Billable utilization = (Total hours billable / Total hours available) X 100%

6. Schedule Performance Index  

Schedule performance index or SPI is more like a tracking metric that is used for measuring schedule against completion progress. It helps save time by enabling project managers to implement timely improvements to increase resource efficiency.

The formula for calculating the SPI is a ratio and has been elucidated below:

SPI = Earned Value (EV) / Planned Value (PV)

The Earned value metric is used for measuring the project performance during execution. Let’s say that the project is estimated to be worth $20,000 upon completion, and the ongoing works are estimated at 10%. Then the earned value would be:

10% X $20,000 = $2,000

In this case, the SPI would be $2,000 / $20,000 = 0.1

If SPI is less than 1, it means that the project is going ahead of schedule, and lower indicates that the completion rate is below what was pre-planned.

7. Employee Churn Rate    

The percentage of team members who decide to leave the company is deemed as the churn rate. An HR or management problem is more likely the reason behind a high employee churn rate and might negatively affect project efficiency. If a large percentage of your project team resigns, the project is more likely to suffer a delay, cause the company to incur additional and unexpected expenses, and even result in lower customer satisfaction.

Although it is impossible to achieve 0% employee churn, care should be taken so that the churn rate does not reach below 15%.

The formula for calculating employee churn is as follows:

(Employees who resigned ÷ Average count of employees) x 100.

If you aspire to become a successful project manager, you need to ensure that you have the necessary knowledge and skills required to lead a project. If you are keen on following this career path, you can take up a PRINCE2 Foundation and Practitioner online training course for the best results.

How to Track KPI in Project Management?

Project management KPI tracking is an integral task that project managers need to follow periodically. However, there are rules to follow when it comes to tracking KPIs. Some of the methods and rules have been listed below: 

1. Ensure that Your KPIs are Specific and Clear  

You need to make sure that you create smart KPIs for efficient project management. Your KPIs should be measurable, specific, relevant, achievable, and time restrictive. With clear and specific KPIs, you can identify your objectives, evaluate them, and even create reports by staying within a definitive timeframe.  

2. Assess  the Purpose of Your KPIs  

Make sure that your monitor only the KPIs that are relevant while managing your project. This will help enhance the efficiency of KPI management and productivity, enabling project managers to focus on the key essentials. The relevance of a KPI can be measured by reviewing what and how much it has contributed to the project. 

3. Establish a Target  

Establishing a specific goal point or a target for your KPIs enhances objectivity in project management. Even if you have little experience in the project, you are responsible for. You can refer to either historical details or the industry standards pertaining to it while establishing a target. 

4. Review the KPIs  

KPIs, although valuable for evaluating and tracking the progress and performance of a project, are also time and cost intensive. Therefore, make sure that the KPIs you monitor are relevant to the project you are responsible for. Obsolete KPIs can be replaced with relevant ones as the project moves closer to its objective. Therefore, reviewing KPIs can help project managers make necessary adjustments to the team structures as well as organizational strategies.  

Importance of Project Management KPI Dashboard  

A KPI project plan is most often developed by the Project manager keeping the interests and advice of the stakeholders and investors in mind. It is presented in an orderly fashion on a project management KPI dashboard that is accessible to the project manager, the stakeholders, and the team members.

It is like a digital rulebook to turn to in project management every time one needs to go back and recheck the stats for perfect evaluation of metrics as well as to integrate changes and remedial processes if necessary. The important reasons why a project management KPI dashboard is necessary are listed below:

• It is a quick and easy solution for tracking KPIs as well as other relevant business metrics. 
• It offers a unified view of relevant data for improved visibility into the health of the company. 
• It can help customize data visualization with the help of status and performance indicators. 

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Conclusion

With all things considered, we can say that each KPI for project management team is important to take into account if you want to drive a project toward its successful completion and delivery. Tools like project management KPI template Excel, sample KPI for project manager, project management KPI dashboard are all part of the development and tracking of Key Performance Indicators integral to a project.

Efficient KPI tracking is the best way to ensure that the project deliverables are successfully met and delivered on time. They also mitigate potential risks with warning metrics and, should a mishap take place, help take corrective measures. All in all, they act like an instruction manual that offers the exact metrics regarding project status, availability of resources as well as overall team performance.

Therefore, as an aspirant in this career, you need to know the nitty-gritty of KPIs in project management. If you want to follow this career path, you can take up some of the best KnowledgeHut Project Management classes that will equip you with the necessary skills required for an efficient project manager.