How to measure and manage using KPIs

K.P.I.s (key performance indicators) are an important management tool for your business and you should have some to help you. Your KPI's are an actionable scorecard that keep your strategy on track. They enable you to manage, control and achieve your business goals. You don’t need a lot of metrics but you do need to carefully select, report, and take action from the handful that you select. Many businesses rely on financial statements and sales results as their primary indicators of performance but you can develop your own “KPIs” that fit your business.

KPI's help you to lead the way towards improving your business performance where it’s needed most. You create a history of how well your business performs over weeks, months, and years. From this history, you’ll be able to quantify success and make a note of warning signs where changes are necessary.

You need to ensure that you are reviewing on a monthly basis and that your senior staff understand the indicators. Rather than just sitting back and blaming “market conditions” or “adverse sales environments” you actually know what is happening from your metrics on the monthly dashboard.

Setting up your own KPI dashboard

You should be getting a monthly management report reviewing how you are doing financially and then analysing your results. You should be reviewing your strategies and KPI's and ensure that any decision-making is transparent. By focusing on specific indicators in a one page 'snapshot' or 'dashboard' you can measure performance against the goals you’ve identified. KPI's help to get insight into your business performance. "What are your company’s strengths and weaknesses?

What gets measured, gets managed.

Choose the most appropriate metrics for your business from examples I have listed here or write your own

• Cost reductions

• Revenue / Turnover increase

• Profit

• Marketing calls

• Sales growth by unit sales

• Market share

• Customer retention rate

• Customer satisfaction

• Production

• Age of equipment

• Workforce turnover

• Readiness to expand capacity

• Levels of quality control

• Distribution processes

• Sales-force training and effectiveness

• Product quality

• Retention of supplier

• Competitors (published reports)

Measure what’s most important. It may take a little time and effort, but after getting a sense of what information is crucial to track, you want to actually narrow your ongoing performance measurement. (This isn’t feasible until you grasp the parameters of your business' strengths and weaknesses.) Choose one or two major objectives, refine your KPIs around them, and focus on collecting the relevant data.

KPI's should be clear so the team or individual knows exactly what they need to achieve and when. The dashboard must allow a suitable period of time for the performance to occur. Your systems must also be capable of reporting on the KPI in the required time frame.

With some focused monitoring and analysis you’ll have a much better understanding of where your efforts are most effective and where you need to adjust things to avoid a major setback.

KPI's are also known as performance metrics, business indicators, and performance ratios. The Business Minder can help you with your business and financial review and setting up a KPI Dashboard for your business.