Let’s talk about KPIs!

The abbreviation stands for Key Performance Indicators, and as the name implies, they are indicators used to measure performance! KPIs are used to measure performance, efficiency, agility, and other traits of a business. The term has its origin in business administration and refers to indicators that can be used to determine the performance of activities in companies.

With KPIs, you are able to measure and determine progress and the degree of fulfillment with regard to important objectives, goals, or critical success factors within an organization.

An often-quoted statement by the economist Peter Drucker is: "You can‘t manage what you don‘t measure." Even though this quote is several decades old, it is especially true and at the same time immensely important in our cloud environment! It especially emphasizes the importance of tagging every resource to gain the ability to measure as many traits as possible on every single resource to get the most improvements.

Now with this theoretical explanation, you’ve already got an idea of what KPIs can do. But let’s take that a step further and see how KPIs look in real life and how other companies are working with them!

Since we are interested in cloud financial management and cost optimization topics, all we are going to focus on are the expenses these companies are dealing with whenever they operate with a customer. 

Netflix is one of the most popular video streaming services in the world; its main product is its video-on-demand service. Their KPI could be the costs caused for content streamed in every second / minute/hour.

Lieferando is a german food delivery service with a twist! They don’t actually deliver food but rather provide a platform for restaurants to gain more customers and for customers to find the food they like, quickly and easily! Their performance could be measured by cost per delivery.

Lyft is a car-sharing service. That could be measured by cost per ride.

AirBnB is a vacation rental service. And the KPI for them could be cost per booking.

In essence, these KPIs basically always mirror the infrastructure costs in relation to revenue. The higher the demand becomes, the more your infrastructure costs increase, and, at the same time, so does the revenue. It basically boils down to this formula: Unit cost = infrastructure cost / number of events over time.

By using this simple equation, you can tell exactly how much worth one unit of whatever your business is selling has!

You see, each of those companies must use their own individual KPI. You can hardly apply KPIs used by Netflix or Lyft to any other business, obviously.

KPIs are tailored to individual businesses, so every business needs to find or rather determine their own indicators, which are suited exactly to their type of business!

Your business or organization may offer a different type of service to those mentioned just now, therefore you will have to find out which indicators you can define that are most useful for your business case!