3.5.3. Selection of Key Performance Indicators

Key performance indicators are indicators that measure the "critical links" in a project's causal chain. Performance monitoring tracks the changes in a project's key performance indicators over time. Since value chain projects can only monitor so many indicators, it is important to focus on those causal links that are considered most critical to achieving project success at the output, outcome, and impact levels. Carefully working through the underlying causal model will help the project identify and prioritize the most critical links in the causal chain and thereby guide it in prioritizing the indicators it will (and can) monitor. (It will also identify the critical links to be evaluated in an impact assessment.)

Selecting key performance indicators requires time and thought. Some critical links are straightforward and easy to measure. In these cases, one indicator may be sufficient to capture the underlying result. For other critical links, however, there may be several possible indicators measuring different dimensions, or even one dimension, of the underlying result. For example, income has several possible dimensions, such as household income, expenditures, asset ownership, housing improvements, whereas income itself (as well as its various proxies) can be measured in a variety of different ways. Engaging key stakeholders in identifying and selecting key performance indicators helps ensure the validity of the indicators eventually selected.

Generally, a "good" indicator will have the characteristics described in the following table: direct, specific, useful, practical, adequate, and culturally appropriate.

Desirable Characteristics of Key Performance Indicators

Indicator Criteria Definition
Direct The indicator should measure as directly as possible what it is intended to measure. For example, if the result being measured is an increase in youth employment, then the best indicator is the number and percent of youths finding employment. The number and percent of youth that receive job or life skills training does not directly measure the result of interest. Nonetheless, sometimes we do not have direct measures, or we are constrained by time, resources, or technical capacity from getting direct indicators. In these cases, proxy indicators have to suffice.
Specific Indicators need to be defined so that everyone understands them in the same way. Instructions on how to operationalize (put into practice) the indicator and definitions of all key terms should be explicit and clear.
Useful Indicators need to help the project understand what it is measuring. The indicators should provide information that helps the project understand and improve its operations and results.
Practical Costs and time involved in data collection and analysis are important considerations. Although difficult to estimate, the cost to collect indicators should not exceed their usefulness.
Culturally Appropriate Indicators must be relevant to the cultural context. What makes sense or is appropriate in one culture may not be in another. Make sure that the indicators are reviewed and approved by persons familiar with the cultural context.
Adequate There is no "correct" number of indicators. The number selected depends on the underlying result being measured and the resources and technical capacity of the project and its implementing partners. The project needs to balance its need for information with the resource, time, and technical demands of data collection, management, analysis, reporting, and usage.