SETTING OKRs and KPIs: A Simple Guide to Tracking Monthly Objectives on a Budget
As a HR consultant who has worked with various businesses in Nigeria and across Africa, one of the biggest challenges I’ve encountered is how to effectively track work performance and progress, particularly in the areas of setting OKRs and KPIs for their employees.
For most business owners, they want to ensure they’re not wasting money on underperforming team members (although when you hire the right people, this worry diminishes).
Given the harsh economic realities in Nigeria, many businesses simply can’t afford the fancy automated goal-setting and performance management platforms.
Some recognize the critical need to align individual and company objectives, but struggle to know where to begin. The approach to take and the most cost-effective methods often seem elusive.
If this sounds familiar, don’t worry – you’re not alone.
In this blog post, I’ll share a simple yet powerful framework that will help you set impactful goals and track your team’s progress. Also, we’ll break down how to set effective OKRs and KPIs, and how you can easily track individual monthly objectives in percentages, all while keeping your costs low.
Get ready to take some notes, because this is going to be a game-changer for your business.
Introducing OKRs and KPIs
At the heart of effective goal-setting and performance management lie two key concepts: Objectives and Key Results (OKRs) and Key Performance Indicators (KPIs).
OKRs, are a goal-setting approach that helps you set clear, ambitious objectives and measure the results. This ensures your team is aligned and working towards the same overarching goals.
KPIs, on the other hand, are the quantifiable metrics you’ll use to track progress and gauge success. These data points provide insights into your strengths and areas needing improvement.
Understanding OKRs in Depth
Objectives and Key Results (OKRs) are a popular framework for teams to plan and measure their success. It starts with leaders at all levels setting high-level, inspiring goals called “objectives.”
Next, teams identify their users and the behavioral changes they aim to achieve. These measurable outcomes are called “key results,” which assess how well teams are meeting their objectives.
This approach emphasizes the impact of work over micromanaging daily tasks. It connects top-down strategy with bottom-up commitments to intermediate goals, focusing on the value of tasks rather than their specifics.
However, where OKRs often fall short is at the individual contributor level. Requesting employees to set their own objectives and key results can lead to one of two issues:
- Binary Goals: Employees create measurable but superficial goals that don’t reflect meaningful growth or improvement.
- Safe Targets: Employees may opt for easily achievable targets rather than taking risks on more ambitious goals.
In a 2020 Harvard Business Review article, Jeff Gothelf highlighted problems with individual OKRs:
- Employees often create simple, measurable goals that don’t reflect meaningful growth.
- They may choose easy targets to ensure success, avoiding more ambitious goals.
Gothelf argues these approaches fail to capture real improvement or encourage risk-taking.
Here is a real life example of what he meant:
In early 2024, I collaborated with a tech startup implementing Objectives and Key Results (OKRs) as their new performance management framework. This transition involved all employees, from leadership to individual contributors, developing personal OKRs aligned with the company’s goals.
To illustrate, one of the software engineers established the following OKR:
Objective: Improve the security of our application by the end of Q2 2024.
Key Results:
- Identify and fix 10 critical security vulnerabilities.
- Achieve zero security incidents reported in user feedback after the update.
- Complete a security audit and implement recommended improvements.
Another example from a customer support team member:
Objective: Enhance customer satisfaction through improved support interactions by the end of Q2 2024.
Key Results:
- Reduce average response time to customer inquiries by 50%.
- Achieve a customer satisfaction score of 95% or higher in post-interaction surveys.
- Implement a new ticketing system that decreases ticket resolution time by 30%.
While these goals appear valid at first glance, they fall short of measuring genuine improvement in the application’s security posture or the quality of customer support.
Effective key results should reflect changes in the target audience’s behavior rather than merely documenting activities.
In both cases, the proposed key results focus on tasks to be completed, not on the value they create. Finishing these tasks doesn’t necessarily show that skills have improved or that the company or customers are benefiting.
Better key results would measure the actual impact of the work, not just the work itself.
To truly measure impact, the OKRs should focus on outcomes that demonstrate tangible improvements in security or customer satisfaction.
For instance, the software engineer’s key results could include metrics on reduced successful breach attempts or increased user trust in the platform’s security. Similarly, the customer support team member could focus on metrics like increased customer retention rates or higher product adoption due to improved support experiences.
The key challenges with implementing effective OKRs lie in setting goals that are truly aligned with the broader product or initiative, rather than just an individual’s own work.
OKRs are powerful and effective because they emphasize team outcomes and business impact over individual performance. However, this makes them challenging, as success depends on the team’s overall impact on end users, not just individual contributions.
To address the limitations of narrow individual OKRs, organizations should invest time in creating OKRs that involve multiple team members and align with broader strategic goals.
This team-based approach helps ensure coordination, alignment, and a shared sense of purpose.
OKRs can transform goal-setting when done right, but they need a cultural shift from isolated, individual metrics. Success should be measured by the real-world results of the team’s collaborative efforts.
Understanding KPIs in Depth
KPIs are quantifiable metrics that help you measure progress towards specific business objectives. They provide valuable data points that allow you to track your performance, identify areas for improvement, and make informed decisions.
Perhaps you’re a small business owner who’s feeling overwhelmed by the day-to-day operations and isn’t sure how to gauge your company’s overall health. Or maybe you’re an employee who’s been tasked with improving your team’s productivity but don’t know where to start. KPIs can be the solution you’ve been searching for.
By defining and monitoring the right KPIs, you can gain a clear understanding of your business’s strengths, weaknesses, and opportunities.
This knowledge can then inform your strategic planning, resource allocation, and decision-making processes, ultimately helping you achieve your goals more efficiently.
Practical KPI Examples:
To give you a better sense of how KPIs can be applied, let’s explore some real-world examples:
- Sales Growth: Tracking your sales growth over time can provide valuable insights into the effectiveness of your marketing and sales strategies. For instance, a 15% increase in sales compared to the previous quarter could indicate that your efforts are paying off.
- Customer Retention Rate: Monitoring your customer retention rate can help you understand how well you’re serving your existing clientele. A retention rate of 85% or higher suggests that your customers are satisfied and loyal to your brand.
- Net Profit Margin: Calculating your net profit margin can give you a clear picture of your overall profitability. If your margin is 20% or higher, it could mean that you’re managing your costs effectively.
- Employee Turnover Rate: Tracking your employee turnover rate can shed light on potential issues in your workplace culture or employee satisfaction levels. A turnover rate of 10% or less may indicate that you’re doing a great job at retaining top talent.
Why You Need Both OKRs and KPIs:
An organization needs both Key Performance Indicators (KPIs) and Objectives and Key Results (OKRs) to be truly results-driven and successful.
If you’re only focused on monitoring KPIs, you would mostly be maintaining the status quo. It’s only a matter of time before a competitor comes along and takes your business.
We’ve seen many examples of companies and products that stopped building, improving, and innovating – eventually they ceased to exist.
On the flip side, only tracking OKRs is equally risky. You wouldn’t notice when you’re about to run out of “gas” (or battery power), and without fuel left in the tank, you won’t get very far.
To be a truly results-driven organization, you need both OKRs and KPIs working together. KPIs monitor your performance and identify problems or areas for improvement, while OKRs help you solve those problems, improve processes, and drive innovation.
How to Calculate Your Team's OKRs and KPIs in Simple Steps:
As a small business owner, your top priorities are controlling costs and ensuring your team performs well. You need an efficient way to set goals and track metrics.
This section provides a simple, cost-effective approach to managing your team’s Objectives and Key Results (OKRs) as well as Key Performance Indicators (KPIs):
- Set monthly OKRs
- Monitor weekly KPIs
- Review monthly progress on OKRs
This streamlined process helps align your team, measure performance, and make adjustments – all while fitting the needs and constraints of your small business.
The goal is to implement a practical system that works for you. This guidance aims to provide that. See the simple steps below:
Step 1: List Your OKRs and KPIs in a spreadsheet.
Step 2: Set a Review Period (weekly, monthly).
Step 3: First, Calculate Progress: For each KPI, use the formula:
Progress = (Current Value/Target Value) × 100
For example, if your target is to respond to customer inquiries in under 30 minutes and you’re currently averaging 25 minutes, your progress would be:
Progress =(25/30)× 100 = 83.3 %
This will give you the percentage of completion for each KPI.
Step 4: Calculate Overall Progress:
Assume that all KPIs are equally important, you can simply average their progress:
Overall Progress = Sum of all KPI Progress/ Number of KPIs
Step 5: Interpret the Result
The overall progress percentage will give you a clear view of how close you are to achieving your goal for the month.
Here’s a Practical Example:
Goal: Increase sales to $50,000 in the month.
KPIs:
KPI 1: Sales from Product A: $30,000 (Target: $30,000)
KPI 2: Sales from Product B: $10,000 (Target: $20,000)
Calculations:
KPI 1 Progress:
Progress = (30,000/30,000) × 100 = 100 %
KPI 2 Progress:
Progress = (10,000/20,000) × 100 = 50%
Therefore, Overall Progress = (100 + 50) ÷ 2 =75%
This means you only achieved 75% of your goal for the month.
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Synergies & Conflicts
There are great synergies between OKRs and KPIs, but you have to be careful not to use them interchangeably or in the wrong way.
Synergies:
An OKR can become a KPI, and an OKR can also be used to improve a KPI. The two work well together.
For example, if your support team’s KPI is to answer incoming tickets within 30 minutes on average, you could create an OKR to “Empower customers to help themselves by building the best help resources” with key results to reduce ticket volume and increase knowledge base traffic.
Conflicts:
KPIs are for monitoring business as usual, while OKRs are for solving problems and driving improvements.
If you find yourself creating the same OKRs quarter after quarter, that’s a sign you’re using them to measure business as usual, which is better suited for KPIs.
Similarly, simply increasing the target values of your KPIs without supporting OKRs can make those KPIs unhealthy. Use OKRs to help realize more ambitious KPI targets.
Common Mistakes to Avoid:
Migrating from KPIs to OKRs – you need both, not one or the other. Ignoring KPIs because you want to implement OKRs first – get your KPIs in place first.
Using OKRs to measure everything – they’re for the most important problems and improvements, not everything.
Additional Tips for Success:
- Regular Updates: Encourage your team to update their progress weekly.
- Visualize Progress: Use simple charts in your spreadsheet to visualize how far you’ve come.
- Feedback Loop: Foster an environment where team members can share challenges and successes.
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Click HereConclusion
Setting OKRs and KPIs can be simple and affordable. Follow these steps to establish a clear framework for tracking your team’s monthly goals. Consistency and regular communication are essential for success. Remember, the key to success is consistency and regular communication. Start today, and watch your team turn into a high performing team!