Use KPIs to drive your business forward
The key to accomplishing your business goals is execution. To measure if you are executing effectively you need Key Performance Indicators (KPIs) to help you drive success by staying focused on the priorities. The answer is to identify drivers that help you accomplish your goals for the quarter or year and enhance the probability of completing your priorities successfully.
But what KPIs and what strategy is best?
1. Take a balanced approach:
Choose KPIs from each major category, i.e. people (employees, customers, shareholders) and process (operations, sales, record keeping). We recommend one that is process oriented and one that is people focused to make sure you have a balanced approach.
2. Less is better:
We recommend having two KPIs quarterly and two key KPIs annually. Sometimes these are the same numbers but in most cases, they are different because the focus is different for each period. The basis for these KPIs usually come from the annual or quarterly theme, the most important thing you are trying to accomplish for the period. These numbers can also support the most important priority for the period.
3. Allow time for adjustments:
Should you choose leading or lagging/results indicators? Most companies use results indicators, such as revenue or EBITDA. While these are important they are historical, and by the time you have the information it is too late to make adjustments. The power of leading indicators is to allow you to make weekly adjustments to insure that you will reach your goals for the period. With that in mind, use leading indicators to drive performance.
4. Assign success criteria:
Once you identify the right leading critical numbers, assign colours – red, yellow, green and supergreen success criteria.
- Green is the goal for the period. This is the result you are looking for and should clearly describe what success looks like.
- Red is unacceptable performance, or failure.
- Yellow is the warning zone between Red and Green and gives you time to make adjustments.
5. Allocate each KPI to an owner:
The last point is that each critical number should have an owner. This is the person responsible for ensuring that the appropriate actions are taken to get under-performing numbers back on track.
6. Create a dashboard:
Use a KPI dashboard and monitor performance weekly to track results.
The key KPIs are metrics designed to drive a company theme, main objective or priorities for a specific period of time. They usually stay in place for the year and are different for the quarter. Quarterly numbers are in some cases a sub-set of the annual critical numbers. These should be the most important and visible KPIs that the company monitors to drive success. Manage them weekly and display them to keep them front and centre for your team. Focus on leading indicators whenever possible.
Let us know how you are using your key KPIs to drive success for your company and if you have any tips and insight to share!
Post originally published via ICAEW Business Advice Service – click here