KPIs - Your Practical Business Scorecard
Just how closely are you tracking how well your business is really performing right now? If in all honesty the most you’re doing is to supplement your gut feel with a quick look over a monthly Profit and Loss produced by your accounting software, then that’s almost certainly nowhere near enough. To give you and your team a much clearer picture of your true scorecard, think Key Performance Indicators (KPIs).
What are KPIs? Well, KPIs are numbers (both financial and otherwise) or ratios measuring the various key processes that your business undertakes. Those key processes are those that most directly influence the movement of revenues and costs shown in your Profit and Loss, and contribute the most towards your goals and objectives.
KPIs for your business do take a little effort to identify, and to set up a system to record. That’s because they’re personal to your business, and because they generally can’t all be extracted from your accounting software dashboard at a moment’s notice. So people often do struggle to select the right ones for their business. As a result, you can often spend far too much time focusing on things that aren’t in line with your business goals. Examples of this can include (assuming you’re pursuing a high margin strategy) throwing endless hours at unproductive projects rather than focusing on productive time, or alternatively a strong focus on sales rather than margins.
Aim for your KPI measurement periods to be as short as possible, and to be available on as close to a real time basis as possible. For example, aim to have weekly KPI statistics available by first thing on the first day of the next week. The sooner you get any bad news, the sooner you can try to correct it.
Restrict the number of KPIs that you’re measuring. Despite this, ensure that they cover all areas of your business, whether marketing, operations, or financial. And that they include those applicable to team members of all levels.
Once you’ve identified your KPIs, set realistic KPI targets for your business that link to your overall financial forecasts and business plan. Then you and your team:
· are never in any doubt as to exactly what you’ve got to do, and the areas in which you’ve got to spend the greatest time, to get the greatest results
· become motivated to become creative at solving problems that stand in the way of achieving your KPI targets
· have a real incentive to excel….after all, people don’t come to work to fail
· can be more honest with yourselves. Ask yourself, how well are you doing what you promised yourself that you would do to achieve your goals? And invariably, input from an independent advisor is the best way of holding you to account for all the promises you’ve made to yourself.
I’ve got no doubt that effectively identified and monitored KPIs have the power to dramatically transform your business. What you can measure, you can manage….or to put it another way, what gets measured, ultimately stands a very good chance of getting done!