KPIs Aren't the Problem. Misunderstanding Them Is.

Alright, this is a bit of a longer post… but if you care about understanding KPIs, you came to the right place. If you don’t care about KPIs, have your ops. guy read it!

Recently, I attended a training session on Key Performance Indicators (KPIs) that, in my opinion, missed an important part of the conversation. The session focused heavily on measuring performance but spent very little time discussing why KPIs exist in the first place or how leaders should actually use them.

To be fair, KPIs themselves are not complicated. Yet they are often misunderstood by both managers and employees. Many employees immediately associate KPIs with discipline, punishment, or management looking for someone to blame. At the same time, many managers mistakenly believe that simply tracking a number will somehow improve performance. Neither perspective captures what KPIs are intended to do.

At their core, KPIs are visibility tools. Imagine hiring an employee and saying:

"We're going to evaluate your performance, but we're not going to tell you what success looks like, what the priorities are, or how we'll determine whether you're doing a good job."

Of course, most people would agree that's unfair.

Employees deserve to know what is important to the organization and how success is being measured. KPIs provide that transparency. They communicate organizational priorities and establish a common definition of success.

In short, a KPI answers a simple question: "What is important enough that we should measure it?" Once that answer is known, employees can align their efforts toward achieving it.

When KPIs Become Scary

The problem isn't KPIs. The problem is how some leaders use them.

A poorly managed KPI system becomes a "gotcha" system. A metric falls below target, and management immediately begins looking for someone to blame. When that happens, employees quickly learn to fear KPIs.

Instead of improving performance, they focus on protecting themselves. Some may even begin manipulating numbers or avoiding difficult work that could negatively impact their metrics.

That's not performance management. It's scorekeeping.

A healthy KPI culture looks very different.

When a KPI misses its target, effective leaders don't ask: "Who messed this up?"

They ask: "What is preventing us from achieving the result we expected?" and that shift in thinking changes everything!

KPIs Should Diagnose Problems, Not Assign Blame

Lets bring this to the our world, the one of a mechanical contractor. Think about a maintenance service department and suppose a contractor establishes a KPI stating that 95% of Planned Maintenance Agreement (PMA) visits should be completed on schedule. At the end of the quarter, the company achieves only 83%.

A poor manager sees a failure, but a good manager sees information!

The KPI should trigger questions such as:

• Has PMA sales growth outpaced staffing growth?

• Has emergency service demand increased?

• Is dispatch creating scheduling bottlenecks?

• Do we need another technician?

• Would a dedicated PMA crew improve performance?

• Has technician availability changed?

• Are customers requesting more schedule changes?

Notice what happened...

The KPI didn't identify a person to blame.

The KPI identified a business problem that leadership needs to understand and solve.

That's what KPIs are supposed to do. They're diagnostic tools.

Much like a check-engine light, they tell you where to investigate. They don't automatically tell you what's broken.

Why Owners Usually Fear KPIs Less Than Employees

There is a clear and present disconnect between ownership/vp/director level roles, and pretty much everyone else. If you don't take a second to understand this, you are going to miss the cultural issue KPIs can create. Leadership live in a KPI environment every day.

They monitor:

• Revenue

• Gross profit

• Cash flow

• Payroll obligations

• Accounts receivable

• Backlog

• Capacity

• Customer retention

Nobody views those metrics as punitive. They're simply measurements used to determine whether the business is healthy.

Employees often have a different experience because KPIs are sometimes introduced without proper explanation or context. If employees only encounter KPIs during performance reviews or disciplinary/corrective meetings, it's understandable why they become skeptical. If they are only being told that they missed the mark, without being asked for input on why and how to adjust, they will feel attacked.

When implemented correctly, KPIs should provide clarity, focus, and opportunities for improvement.

A good KPI doesn't say:

"You failed."

A good KPI says:

"Let's understand why this result occurred."

Understanding Leading and Lagging KPIs

One of the biggest mistakes I hear organizations make is measuring only outcomes. These are called lagging indicators because they tell us what already happened. The problem is that by the time a lagging indicator changes, the opportunity to influence it may have already passed.

That's why organizations also need leading indicators.

Lagging Indicators - Lagging indicators measure results.

Examples:

• Revenue

• Profit

• Customer retention

• Safety incidents

• Project completion dates

These metrics tell us whether we succeeded.

Leading Indicators - Leading indicators measure the activities and behaviors that drive results.

Examples:

• Estimate turnaround time

• Training hours

• Preventive maintenance completion rates

• Safety inspections

• Customer follow-up calls

These metrics help predict future results.

An Easy Way to Remember the Difference

• Lagging KPI: Did we achieve the goal?

• Leading KPI: Are we doing the things that make achieving the goal likely?

Great organizations monitor both.

Lagging indicators tell you whether you've arrived.

Leading indicators tell you whether you're headed in the right direction.

Mechanical Contracting KPI Examples - Construction Operations

You don't need all of them, but here are some common KPIs that are relevant to our industry:

Financial Performance

KPI	Type
Gross Profit Margin	Lagging
Labor Cost Variance	Lagging
Estimate vs Actual Cost Variance	Lagging
Revenue per Labor Hour	Lagging
Cash Flow Performance	Lagging
Backlog Value	Leading
Change Order Recovery Rate	Leading

Project Delivery

KPI	Type
Percent of Jobs On Schedule	Lagging
Schedule Variance	Lagging
Rework Percentage	Lagging
Punch List Completion Rate	Lagging
Percent Plan Complete (PPC)	Leading
RFI Response Time	Leading
Change Order Cycle Time	Leading

Workforce

KPI	Type
Employee Turnover Rate	Lagging
Labor Utilization Rate	Leading
Overtime Percentage	Leading
Apprentice-to-Journeyman Ratio	Leading
Training Hours Per Employee	Leading

Safety

KPI	Type
OSHA Recordable Rate	Lagging
Lost-Time Incident Rate	Lagging
Near-Miss Reports	Leading
Safety Audit Scores	Leading
Toolbox Talk Participation	Leading

Service Operations

Mechanical Contracting KPI Examples - Service Delivery

KPI	Type
First-Time Fix Rate	Lagging
PMA Completion Rate	Leading
Emergency Response Compliance	Lagging
Average Response Time	Leading
Technician Utilization Rate	Leading
Dispatch Efficiency	Leading

Customer Metrics

KPI	Type
Customer Retention Rate	Lagging
Service Agreement Renewal Rate	Lagging
Net Promoter Score (NPS)	Lagging
Customer Satisfaction Score	Lagging
Callback Rate	Lagging
Customer Follow-Up Completion Rate	Leading

Financial Metrics

KPI	Type
Revenue Per Technician	Lagging
Gross Margin By Technician	Lagging
Average Ticket Value	Lagging
Accounts Receivable Aging	Lagging
PMA Attachment Rate	Leading
Service-to-Repair Conversion Rate	Leading

Capacity Metrics

KPI	Type
Days to First Available Appointment	Lagging
Open Calls vs Available Hours	Leading
Technician Drive Time Percentage	Leading
Billable Time Percentage	Leading
Capacity Utilization	Leading

Final Thought

The best organizations do not use KPIs to catch people doing something wrong. They use KPIs to understand whether their priorities are being achieved and whether their strategies are working.

A KPI should never be viewed as a weapon. It should be viewed as a flashlight. Because when leaders can clearly see what's happening, they stand a much better chance of fixing what's not working and reinforcing what's going right.

And that is what KPIs were designed to do in the first place.

Now pick your quote and go get busy building your needed KPIs!

• "What gets measured gets managed."

• "If you can't measure it, it's difficult to manage it. If you can't manage it, it's difficult to improve it."

• "You can't adjust what you can't see, and you can't see what you don't measure."

Gregory Johnson, MPA, CAE, MSOLC

Chief Operating Officer

MCA Detroit