To make things easier and faster, the companies sometimes “borrow” metrics from guides or successful projects, forgetting that KPIs should be custom-made – otherwise, they may do more harm than good. In this article, drawing from our expertise and experience gathered throughout numerous software projects, we describe the process of defining the relevant KPIs. Moreover, we have collected the most common reasons why KPIs do not bring satisfactory results and how to avoid them.
What are KPIs in software projects?
KPIs (Key Performance Indicators) are metrics that reflect the team’s effectiveness in achieving business objectives. They may be both financial and non-financial and cover various areas, from marketing, through supply chain management, to quality control.
KPI can serve as an indicator of the company’s performance, strengthening its business culture by providing feedback to both employees and employers. In software projects, on the other hand, KPIs become rather a controlling tool that helps the team prioritize the decisions, specify the goals and verify their fulfillment. When the issues occur, KPIs make it easier to tackle them, helping the team get back on track and deliver the project responsibly.
How about an example of a KPI? There are thousands of possible indicators, but let’s bring up the most common ones across industries to give you an idea of how broad this term is. When it comes to engagement, we can list, for instance, Lead Conversion, Average Order Value, Total Pipeline Value, or Cross Sell percentage. In terms of operations, we may be talking about Quick Ratio, Accounts Payable Turnover, and Net Profit Margin. Whereas in software projects, the main KPIs usually include Velocity, Code Coverage, Flow Efficiency, Cycle Time, and, in the case of agile methodology, Sprint Burnout.
Good KPI in software projects
How to find relevant KPIs for your software projects? It is worth starting by asking yourself these questions:
- What outcome are we aiming to achieve?
- Why are we aiming at achieving this outcome?
- What may impact this outcome?
The teams sometimes limit themselves to the first question. However, the second one may filter the relevant KPIs from so–called vanity metrics – the measurable goals that do not bring any value and lack relevance but are easy to impress others with. Such metrics, although they may give the team a kick, pull the wool over their eyes in the long term, sabotaging the efficiency.
The third question, on the other hand, will help you draw conclusions from the particular metrics. If the results are unsatisfactory, you can easily track down the issues that have led to the failure and solve them in the next iteration.
The SMART rule
In order to make the KPIs a handy tool in software projects, we recommend reaching out for the SMART criteria approach, which points out 5 essential features your indicator should stand out with:
- Specific – it should be precise, without ambiguities
- Measurable – it should contain real numbers/values that will later serve for verifying the effectiveness of the actions
- Attainable – it should be possible to achieve
- Relevant – it should correspond to the specifics of the project and bring real profits
- Time-bound – it should have a specified deadline within the goal is expected to be achieved
KPI best practices we recommend following
You may end up modifying your key performance indicators throughout the course of the project. However, the earlier you find your perfect set, the more likely it is that you will deliver the results on time. Our tips may help you with that. What to start from?
Understand the essence of every KPI
Make sure that every team member has a similar understanding of your project KPIs. Every key performance indicator is a sort of signpost. Imagine that you’re on the trail, and you get to the crossroad marked with signs that can have different interpretations. The team will likely end up getting into a conflict or parting in different directions. That’s the last thing you want for your software project to happen, isn’t it?
The lack of common understanding may undermine the effectiveness of the team’s efforts. Plus, it may weaken the team’s motivation, without which it will be challenging to bring a project to an end. KPIs should not only provide the team with feedback, but also point out a direction and inspire – but it is much harder when everyone has a slightly different vision.
How to avoid this issue? First, back to the SMART rule – your KPI should be specific. That means short, without ambiguities, with real numbers and real deadlines. The less room for doubt, the better. To get this right, you can unite your team for the discovery workshops and shape the KPIs together, discussing what they mean to you. It is also worth doing a check once in a while, for instance, at the end of each sprint, to resume the KPIs and their priority with everyone involved.
The hierarchy of KPIs
In software projects, some KPIs carry more weight than others. It is worth establishing the hierarchy of your metrics in order to prepare a future ground for interventions if such is needed. This way, if the top ones bring worrying outcomes, you will know it is time to act ASAP. And if the ones at the bottom of the hierarchical order you established disappoint you, you can always take your time.
During the discovery workshop, create a list and prioritize the KPIs, trying to limit their number. Stick to KPI quality, not quantity, picking a few most relevant indicators. Having extensive metrics will not necessarily fuel your project’s success, but rather create confusion. Less is always more in the context of KPIs!
Update the goals according to the current situation
Although it shouldn’t, defining the KPIs often looks like this: the team has the project to carry out, and it needs some metrics to evaluate its performance, but the deadline is too close. The clock is ticking, so what to do? They end up reaching out for some universal KPI formulas. Some KPIs work for all software projects, right? The team will likely pick those that are easiest to measure so that they can get some feedback and update the customer on the progress without wasting too much time.
This scenario does not have to go wrong – in some cases, it neither fuels nor sabotages the projects’ success. But it may go wrong, particularly if you do not maintain flexibility. There is only one solution – you should always reserve some time throughout the course of project development for the KPI definition and redefinition.
Skipping that part in a rush may make your road to success narrow and winding. And also expose you to unnecessary costs, as in the end, you are collecting data on the metrics that are not relevant. Every project is different and sticking to the “universal” metrics always equals risk. Our experience tells us that if you land it successfully, it is usually a matter of blind chance.
Even if you thoroughly adjust the KPIs to the specifics of your project, don’t rest on your laurels. You will likely have to verify their relevance every once in a while. Software projects evolve, their priorities change, and so does the market to which the product will be released. The goals that were critical a few months before may fall down to the bottom of the hierarchy. KPIs should reflect that. There is no need to be afraid of changing them accordingly. As we have already mentioned, the end of the iteration may be a good moment to do so.
Understand the relationship between the outcome and the output
When defining your KPI, you will need to determine an expected outcome. But wait – should you rely on those or operate on outputs instead? Although these terms are sometimes used interchangeably, their meaning is radically different. The outcome is the result you want to achieve, and the output is what makes it possible.
Sounds vague? Let’s use the example. Imagine you organize a charity event aiming at raising money for expensive medical equipment at the children’s hospital. The raised sum will be an output, and the most accurate child diagnostics in the hospital department will be an outcome.
Based on this example, you can see that the output is much more specific and easy to measure. Your goal is to collect a certain amount of money and after the event, you can easily verify whether you achieved the goal. Will it translate into the expected outcome? That depends on some other factors.
The fact that outputs are easier to measure and achieve does not mean that you should limit yourself to them when establishing your KPIs. You should know both your outputs and outcomes, treating the outputs as a means to achieve the output. When sticking to outputs only, you may fall into the trap of the “watermelon effect” (everything seems fine on the surface, but the closer to the core, the more red flags there are). And relying solely on outcomes, your team may feel the goal is too far to achieve and lose your motivation on the way. Try to find the middle ground!
Our experienced team can help you with defining the KPIs and adjusting your product strategy to the evolving market reality. Drop us a line so that we can chat about your project!