Performance Management – Goals, Objectives, KRAs, KPIs – What’s the Difference?
More and more we see the confusion between Goals, Objectives, KRAs, and KPIs when it comes to defining and measuring the performance of people in the organisation. In many instances these terms are used interchangeably – but this is wrong. Of course there is a relationship between these terms, but the meaning of each is clear and should not be confused with other terms.
In the interests of improved “people performance management”, we attempt to clarify these differences and provide examples of how and when each is used.
A “goal” can be defined as “The purpose toward which an endeavor is directed“. In personal and organisational development terms, the goal is the main single aim of the entity.
Examples of Organisational Goals are:
- “To be the leading supplier of IT applications in the Region” (however the region is defined – this is not important for the example.
- “To be an Employer of Choice for IT employees”
- “To maximise Return on Investment to our Shareholders”
Each of these “goals” describes a different way of looking at the organisation, and, most certainly, a different way of achieving and measuring success.
A goal is an “umbrella” statement that then needs to be broken down into how this will be achieved – in other words, the goal is broken down into strategy to achieve the goal.
An organisation may have more than one goal, but the number of goals should be limited to not more than 3.
“Objectives” are the elements which, together, achieve the goal.
The difference between a Goal and an Objective is the element of “measurability”. Objectives are the overall strategy by which the organisation intends to achieve its goal.
Examples of Objectives based on the above Goals are:
- “To increase Market Share in the Region by 5% by year end without compromising on service.” (Obviously in this example a 5% increase is needed to become the leader)
- “Reduce Employee Turnover by 5% by year end while maintaining a high level of internal talent” (No point in reducing turnover just to keep the “dead wood” of the organisation.
- “Increase Profit after Tax by 5% by year end while maintaining headcount and service quality”. (No point in increasing profit if it leads to a falloff in service – which means reduced profit in following years!)
Objectives break down the goal into “bite-size”, measurable units. Each “objective” defines the quantity, time limit, and parameters in which it is to be achieved.
A “Goal” can have one or more “Objectives”, but the number of Objectives should also be limited to ensure that they are both manageable and achievable.
Key Result Areas (KRA)
Goals and Objectives are set at organisational level, then “cascaded” throughout the organisation to department, and even to individual level if applicable.
“Key Result Areas” or KRAs, also called “Key Performance Areas” (KPAs) refer to general areas of outcomes or outputs for which a role, or a combination of roles, is responsible. These are the areas within the organisation where an individual or group, is logically responsible / accountable for the results.
Typical CORE Key Results Areas for an IT department would be:
- IT Strategy and Planning
- Business Solutions (design, development and implementation)
- Service Delivery – the management of the delivery of services to the organisation
- Service Support – the support of users and service delivery environment
Within the CORE Key Result Areas, there may be specific Key Result Areas:
- “Innovation” – if one of the objectives is to create new products and services
- “Customer Focus” – if one of the objectives is to improve customer service.
KRAs always link back to Objectives and Goals. This is how we “plan” and “deliver” the achievement of goals.
Identifying KRAs helps the business area and the individuals in the business area to:
- Clarify their roles
- Align their roles to the organisation’s business or strategic plan
- Focus on results rather than activities
- Communicate their role’s purposes to others
- Set individual and team goals and objectives
- Prioritise activities, and improve time/work management
- Make value-added decisions
A typical area targets three to five KRAs.
Key Performance Indicators
Sets of Key Performance Indicators, or KPIs, are established to measure performance in Key Results Areas (or Key Performance Areas) – and by definition, link back to the achievement of department / organisation objectives, and the achievement of the organisation’s goals.
Putting it All Together
Goals, objectives, KRAs, and KPIs come together under the banner of “Performance Management”.
Performance Management refers to the process of setting goals and regularly checking progress toward achieving those goals. It is a continuous process feedback loop whereby the outcomes are continually measured and compared with the target objectives. Any discrepancy or gap is then fed back into changing the inputs, so as to achieve the desired objectives. Any such management control system involves communicating the required change and promptly taking action to effect the desired change. This helps the system or organisation being managed to achieve the required goal or the strategic plan.
Performance Management has often been confused with “Performance appraisal”. “Performance Appraisal” forms only the final part of the performance management cycle. Performance Appraisal is a backwards looking process and a “Lagging Indicator” of performance, measuring what happened in the past. Performance Management is a forward looking process and a “Leading Indicator” of performance because it drives a system or organisation towards a desired future goal.
Fundamental for Performance Management is the system that defines the requirements and sets the objectives. In Human Performance terms, this is the Job Description and the Performance Agreement.
The Job Description
The Job Description describes the role that is to be accomplished by a group of individuals, e.g. Programmers. It defines the purpose of the role, the outcomes, the responsibility areas, the KPIs to be achieved, the tasks to be performed and the competencies required to accomplish the role.
The Job Description (a) should not be defined against an individual, but rather in terms of the “role” required by the organisation to achieve its goal, and (b) should not be changed too frequently otherwise it looses its integrity and its value to the individual.
So, although the KPIs are stated in the Job Description, they are stated in general terms and form the basis on which to set Individual Objectives for the performance period.
Making it Work
The Performance Management cycle starts, therefore, with the overall goals and objectives of the organisation. These are cascaded down the organisation and serve to determine the roles necessary to achieve the objectives and goals.
Once the roles have been defined (Job Description) and incumbents placed into roles, “Individual Objectives” are set in a Performance Agreement, based on the KPIs described in the Job Description, for the Performance Period. These are measured on a regular basis throughout the Performance Period and corrective action taken when actual performance falls behind planned performance.
In this cycle there are, therefore, documents that are “long-term”, i.e. Organisational Goals, Job Descriptions and Competency Profiles, and documents that are “short-term”, that is, they can change depending on random circumstances. For example, Organisational Objectives – may change if the economic environment changes and may have short-term horizons (this quarter, first half of the year, etc.), Individual Objectives (Performance Agreement) – may change if priorities change or if the actual performance does not meet required performance and may have short-term horizons (this week, this month, this quarter, etc.)
It stands to reason, therefore, that “long-term” documents should not contain “short-term” information, and “short-term” documents should not contain “long-term” information.
Goals, Objectives, KRAs, and KPIs are collectively essential elements of the Performance Management cycle. However, within the cycle, some have a “long-term” focus and some have a “short-term” focus. If Performance Management is to be implemented successfully, the correct documents and measures need to be used correctly, and in the correct place.