A simple process for identifying KPIs for your business.
The reasons for monitoring KPIs in your business are well known, but it is surprising how many businesses large and small don’t monitor any KPIs other than cash in the bank, or at best profit. And the timing is often sporadic. While these are important measures, they fall well short of painting the true picture of a business’s performance. It’s a bit like sailing a ship in the fog with only the fuel gauge.
To quote Bryan Travers;
“We have distorted the meaning of measurement by continually referring to the ‘bottom line’ – hence senior executive teams who believe that setting objectives means ‘revenues, costs and profits’. The iron fist of financially obsessed leaders is one of the key indicators of an organisation’s future failure.”
In spite of the reasoning for having KPIs we often hear the excuses,
“I don’t have time for this”, “I just get on with it”, “I know my business”, “I don’t need these”.
And yet we use KPIs in our everyday life on all the things we do that involve a planned outcome, we just don’t call them KPIs.
- When we drive to a destination – We use our GPS ETA, Fuel to go, Speed.
- When we cook a meal – Timer, Temperature, Recipe, we don’t just throw a bunch of ingredients into a pot and hope for best. (well must of us don’t)
- When we sail a yacht – we monitor wind, speed, direction, etc
- When we fly a plane – we monitor wind, height, direction etc.
Isn’t the business vision the planned outcome?
A little improvement can make a significant impact to the bottom line. A business turning over a million dollars making a 10% profit can double its profit with only a 5% shift in revenue and 5% reduction in costs (You do the math). And yet you cannot see a 5% shift without measuring it.
Here is a simple framework to help you develop KPIs for your business.
- Start with Business Strategy (the vision)
- Record what key questions of performance you should know about for these areas of your business;
- Staff – How are they performing, are they engaged, what is our performance on Health and Safety.
- Process – What is the utilisation of our capacity? How efficient is our process? Your most expensive piece of kit should be your constraint.
- Customer experience – What is the customer experiencing when working with us – DIFOTIS (Delivered in full On Time In Specification), Complaints.
- Results – Gross Profit, Net Profit, Cash position.
- Identify what data you need, look at your existing data to find the right supporting data. Often you have most of this data already.
- Determine the right measurement methodology and frequency and then assign ownership for your KPIs.
- Ensure KPIs are understood by people within your organisation and find the best way to communicate your KPIs.
- Review your KPIs to ensure they help improve performance
A very simple method to determine if the measure is a KPI or not is to ask yourself, if this measure dropped by 50% or doubled, would it make a material difference to the business? If the answer is yes then it is a KPI!
It’s also worth noting that one person’s KPI can be another person’s PI (Performance Indicator), a team leader may have a KPI around cold calling, while at Board level, this would just be viewed as a PI.
Remember, what gets measured, gets done, try it, you might be surprised by the difference this makes.