OKRs versus KPIs: What are they, and why are they important?
Tempo Team
In the ever-evolving landscape of project management, two powerful acronyms have stood the test of time: OKRs and KPIs.
Both are invaluable tools for measuring success, but their distinct approaches and applications leave many professionals scratching their heads. If you fall into this category, don’t worry — while you might not be well-versed in the nuances that distinguish OKRs versus KPIs and when to apply each, rest assured that your dedication to monitoring progress is already paving the way for you to become a reporting guru.
Let's delve into the nitty gritty of OKRs and KPIs to demystify their ability to propel your projects toward success.
What’s a KPI?
A key performance indicator (KPI) is a quantifiable metric project leaders use to evaluate the success and performance of an organization, team, or individual in achieving specific objectives. KPIs provide valuable insights into progress, helping businesses and individuals make data-driven decisions and stay on track toward their goals. Achieving these specific targets usually means success.
Often used for reporting quarterly revenue, website traffic, or sales transactions, KPIs are how a business takes its internal temperature. Of course, these measurements are only universal in concept — but a KPI framework can help you create and set KPI targets explicitly tailored to your business.
For instance, an organization that offers pet vaccination services shouldn’t use a KPI dashboard designed for the financial industry. Instead, the company must build its own metrics from scratch, reporting top-level success indicators like the number of pets vaccinated and month-over-month customer growth. Naturally, there'd be financial numbers somewhere, but concerned with their specific profitability method and how it reflects their performance.
Let's take a look at three departmental KPI examples and a brief description of each:
Marketing KPIs
Site traffic: The volume of website traffic, typically examined daily, weekly, and monthly
Conversion rate: The number of sales compared to the amount of site traffic
Cost per lead: Marketing costs divided by the number of converted sales leads
Human resource KPIs
Turnover rate: An ongoing analysis of employee turnover
Training costs: Investments in employee training compared to employee retention
Revenue per employee: Overall company revenue divided by the total number of employees
Project management KPIs
Completion percentage: The percentage of project tasks staff complete on time
Budget variance: The difference between proposed and actual budgets
Average cost per hour: The total cost of all project factors — including labor, office space, and technology — divided by the number of project hours
What’s an OKR?
KPI metrics don't just appear out of thin air — they require guidance. That's where your objectives and key results (OKRs) come in.
An OKR is a goal-setting framework used by organizations to define clear and measurable objectives and the key results that indicate the achievement of those objectives. Generally focused on long-term outcomes, OKRs target quarterly or annual achievements at the individual, team, and company levels. They’re designed to align people toward common goals and drive focus, transparency, and accountability.
Regardless of the ambition of the goal, OKRs serve as reliable trackers of its progress. Key results measure various aspects of success and improvement, all dictated by a specific objective. For instance, if your goal is to enhance your pet vaccination services by doubling your customer base, your OKRs would encompass the metrics aligned with this goal.
These common OKR examples reflect their connection to KPIs:
Marketing OKRs
Objective: Increase site traffic by 25%
Key result 1: Grow social media click-throughs by 50%
Key result 2: Create and launch 10 demographic-specific advertising campaigns
Key result 3: Increase ad spending by 20% over the next three months
Human resources OKRs
Objective: Decrease the employee turnover rate by 10%
Key result 1: Add five new courses to the training and development programming
Key result 2: Perform compensation analysis on all employee roles
Key result 3: Increase new technology spending by 50%
Project management OKRs
Objective: Lower the project’s average cost per hour from $60 to $40
Key result 1: Expand the project timeline by 20%
Key result 2: Lower technology costs by $10,000 a month through new vendor agreements
Key result 3: Add five project management training courses for project leaders
KPI versus OKR: What's the difference?
The main differences between OKRs and KPIs lie in their approach to measurement and what they gauge.
OKRs are strategic goal-setting tools that guide the direction and priorities of an organization, while KPIs are performance metrics used to assess the success of specific activities or initiatives. Both OKRs and KPIs are essential components of effective performance management and work together to drive success and continuous improvement.
Beyond this fundamental difference, here are some other important contrasts between the two:
1. Purpose
OKRs are goal-setting frameworks used to define and align ambitious objectives with specific, measurable key results. They emphasize driving progress and fostering alignment throughout an organization.
KPIs, on the other hand, are quantifiable metrics that measure the performance of specific processes, projects, or individuals. They’re focused on evaluating performance and providing insights into the success of specific actions or strategies.
2. Scope
OKRs typically focus on broader, strategic goals. Team members often use them to align different departments toward shared objectives and create a unified vision.
KPIs tend to be more specific and narrow in scope, honing in on specific performance indicators related to a particular project, process, or area of business.
3. Timeframe
Companies commonly set OKRs on a quarterly or annual basis, allowing for longer-term planning and progress tracking.
By contrast, teams often track KPIs in real-time or on a more frequent basis, providing immediate feedback and allowing for agile decision-making.
4. Ownership
By nature, KPIs are top-down metrics created by leadership. Their scope and impact mean they’re best suited for big-picture decision-makers, not day-to-day workers.
OKRs can be both top-down and bottom-up metrics, depending on independent and company goals. Any team member can contribute to OKRs, so long as they have an intimate understanding of the project and its needs.
KPI and OKR best practices
What does an OKR mean in business? How do you apply specific KPIs to your company? And what quarterly progress should you be tracking?
Well, the last one is up to your business, but there are some best practices that are worth considering when implementing KPI and OKR reporting.
Remember the “key” part
When building your KPI scorecard or dashboard, stay focused on the business metrics that actually matter. Flooding your dashboard with every statistic possible will only serve to confuse your audience. You want to stick to measurements that show real progress.
For your objectives, start with goals that are integral to the health of your organization. Key results that affect profitable outcomes are the priority. After you have these down, you can move on to team and individual goals.
Maintain attainable targets
Since your KPIs reflect your business's health, keeping them tied to actual company goals is essential. Outlandish or unattainable KPIs will discourage your team and create unrealistic expectations. The same sentiment exists for OKRs, which should focus on achievable goals that fit within reasonable time frames.
Review and update
When reviewing KPIs during strategy meetings, you may determine that a particular KPI is no longer valid — or perhaps you've already met one of your goals. If that's the case, it's time to create a new KPI or check one off on the dashboard.
Because you build OKRs around shorter-term goals, you need to review them often and ensure they still fit with overall project or company objectives. When the opportunity arises, update your OKRs to better align with new initiatives or project directions.
Why measuring performance is important
In the world of business, stagnation flies in the face of success. Your company should always be striving to grow, improve, and edge out the competition — and many of its goals likely align with this mission. But without regularly measuring your performance, how can you know if you’re meeting these targets?
KPI and OKR reporting isn't a chore — it's an opportunity to examine an individual, team, or organization’s strengths and weaknesses. Consistently reviewing your company’s progress gives you a clear view of not only what you’re doing right, but what you can do to be better.
Hit your goals with Strategic Roadmaps
Unlock the full potential of your strategic plans and project-oriented OKRs with Strategic Roadmaps. Our tool empowers you to seamlessly create audience-friendly project roadmaps, effortlessly prioritize and track ideas, and gather valuable reporting data to drive informed decisions.
And if you want to track how much time you spend compiling your KPI reports, check out Timesheets by Tempo. With a streamlined time-tracking process, you can work to reduce project hours and average costs.
