What is the difference between a metric and a KPI, and how would you develop a set of KPIs to measure a company's performance?
A core FP&A interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
A metric is a measure of performance, while a KPI is a metric that is tied to a specific strategic objective. To develop a set of KPIs, I'd start by identifying the company's key strategic objectives, and then work with stakeholders to identify the metrics that are most closely tied to those objectives. Next, I'd use a combination of data analysis and stakeholder feedback to validate the KPIs and ensure they are relevant, measurable, and actionable.
WHAT INTERVIEWERS LISTEN FOR
- ✓Strategic objectives
- ✓Metric validation
- ✓Stakeholder feedback
COMMON MISTAKES
- ✗Failure to tie metrics to objectives
- ✗Inadequate stakeholder engagement
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