Key Performance Indicators (KPI): What Are They and Why Are They Important?

What is a key performance indicator (KPI) and why is it important for organizations?

1) A tool for tracking progress
2) A measure of organizational effectiveness
3) An indicator of employee productivity
4) A method for setting goals

Final answer:

A key performance indicator (KPI) is a measurable value that shows how effectively an organization is achieving key objectives. KPIs are vital for tracking progress and guiding decision-making within a company. The option (2) is correct.

Explanation:

A key performance indicator (KPI) is a measurable value or metric that demonstrates how effective an organization is at achieving important objectives. KPIs are essential for measuring progress towards goals, helping to make the goal-setting process measurable and motivational. KPIs must be aligned with the organization's objectives and must be quantifiable to effectively track progress.

These indicators are crucial for managers and stakeholders to determine if the company is on the right path to success and to make informed decisions. An example of a KPI could be the annual growth rate of revenue for a company, which provides a clear, measurable metric to gauge the organization's financial performance. Therefore, option (2) is correct.