Difference Between KPI and KRA

Key Difference – KPI vs KRA
 

KPI (Key Performance Indicators) and KRA (Key Result Area) are determined by the mission, vision, and strategy (how the objectives of the organization will be achieved) of a company. The key difference between KPI and KRA is that KPI is a quantifiable metric used to evaluate the achievement of an objective whereas KRA is a strategic area where excellent performance is required in order to outperform competitors. The relationship between KPI and KRA is that objectives are designed using KRAs, and their realization is measured by KPIs.

CONTENTS
1. Overview and Key Difference
2. What is KPI
3. What is KRA
4. Side by Side Comparison – KPI vs KRA
5. Summary

What is KPI?

Key performance indicators (KPI) are metrics designed to assess the achievement of objectives. For each objective, there will be a dedicated KPI which will be set at the beginning of the performance period. At the end of the performance period, based on the KPI management can decide whether the organization is making progress towards achieving that particular objective.

Management should evaluate the following questions when deciding on KPIs

• Are the KPIs well linked with the strategic objectives?
• Can the achievement of KPI be controlled?
• Can actions be taken to improve the performance of KPI?
• Can the KPIs be easily explained?
• Is the KPI easy to manipulate?

The balanced scorecard is a management tool built with the heavy use of KPIs and can be used to understand KPIs effectively. Balanced scorecard operates with four perspectives; objectives are set for each perspective. KPIs are used to measure whether the objectives are achieved or not, as well as to what extent they have been realized.  These four perspectives and some examples of their KPIs are listed below.

Perspectives of Balanced Scorecard

Financial Perspective

• Profitability of assets
• Efficiency of assets
• Market price per share
• Ratio to marginal revenue
• Asset value per employee

Customer Perspective

•  Market share
• Average sales volume per customer
• Customer satisfaction
• Customer loyalty
• Number of advertising campaigns

Internal Business Perspective

• Average product- labor output ratio
• Labor productivity growth
• Efficiency of information systems
• Number of properly executive orders

Learning and Growth Perspective

• Expenses for research and innovation
• Average training cost per employee
• Employee satisfaction index
• Marketing expenses per customer
• Number of registered patents

What is KRA?

Key result area (KRA) is a critical success factor either internal or external to the organization where superior performance must be achieved for the organization to achieve its strategic goals, and ultimately the mission and vision. Key result areas are also referred to ‘critical success factors’ or ‘key drivers of success’.

Ex: McDonald’s is popular as one of the most efficient fast food chains in the world; they have to maintain this standard everywhere in the world. McDonald’s cannot be defined without the concept of fast food. Thus, the speed of delivery is a KRA for McDonald’s.

KRAs can also be developed for employees in an organization linked to performance objectives and job roles. Generally, key result areas are around three to five major responsibilities that are included in an employee’s job specification and indicates the person’s main value to the company. An analysis of these areas can help employees develop a personal strategic plan for career development and serve as the basis for employee performance evaluation.

What is the difference between KPI and KRA?

Summary- KPI vs KRA

The key difference between KPI and KRA predominantly depend on the way they are used for organizational success. Every business has a set of pre-determined objectives they want to achieve which should be assessed against dedicated metrics. The same will be done through KPIs. KRAs are essential areas where superior performance is vital in order to survive and succeed in the industry. Businesses use KPIs to understand whether they were able to achieve the set KRAs. If KPIs and KRAs are determined and managed effectively, businesses can obtain a competitive advantage that cannot be outperformed by competitors easily.

Reference:
1.”What is the difference between a KRA and a KPI?” LBL Strategies. N.p., 09 Feb. 2017. Web. 30 Mar. 2017.
2.”List of Sample KPIs in 5 Perspectives of BSC.” Balanced Scorecard Software – BSC Designer. N.p., 30 Oct. 2016. Web. 30 Mar. 2017.
3.”What are key result areas?” Reference. N.p., n.d. Web. 30 Mar. 2017.
4.Jamal Nassar, Business Coach & Trainer Follow. “Measuring KPI JN Doha 8 nov v 1.6 عربي engish.” LinkedIn SlideShare. N.p., 10 Feb. 2014. Web. 30 Mar. 2017.