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The main purpose of performance measurement is to drive business performance. With a little planning and forethought selecting the right key performance indicators and implementing them effectively will improve your business’ performance.
Why KPIs are important
KPIs enable you to view which elements of your business are performing effectively, they also highlight those areas of the business that are underperforming. KPIs can provide instant notifications of changes to trend, with a proper monitoring mechanism KPIs can offer the business valuable information to react to events that can significantly impact the business. They also offer valuable performance information on productivity levels against target, enabling management to make informed decisions.
Finding KPIs for your business
It is important to choose KPIs that relate to aspects of your business that you can control. KPIs should also be linked to the high level goals of the business.
For example the price of oil maybe a crucial factor for the performance of your business, but this cannot be used as a KPI as the business has no control or power to directly change it. By contrast, the exposure to high fluctuations in oil prices can be controlled so this might be a useful KPI.
Typically, effective KPIs include return on investment, profit margin, sales figures, customer complaints, appointments, unique website visitors, conversions and cost per lead. However KPIs may also be industry specific or required for legislative purposes.
The process of defining your KPIs
There are essentially two main ways you can use KPI’s to improve business performance.
Firstly, you can use KPIs to highlight potential problems and opportunities, secondly they can be used to set targets for departments and employees to focus and deliver goals or targets. It is a good idea to keep these in mind when working through the following steps:
1. Define the successful areas of your business.
The process for defining your KPIs begins with identifying the areas of your business that are successful, and then directly focusing on the measurements that are relevant and achievable. Obviously this will vary from organisation and sector.
2. Brain storm the criteria
Collate opinions on why these areas are successful – involve management, users and teams in the process. Create a list stating how these areas could be improved, are there any negatives? Try to answer the following questions for each area:
- Where are we?
- Where do we want to be (and when)?
- How are we going to get there (cost effectively)?
4. Defining specific measurements.
You should now have your areas and criteria defined, including a list of KPIs and their respective owners; you will now need to find the best way to measure them. For example it may be apparent that marketing is a strategic priority – it is clear from the exercises that it is an area that is directly responsible for leads through the website that are converting into sales. You might consider measuring:
- The number of unique visitors
- The number of visitors to sales
- The cost per lead
Managing your KPIs.
Once you have identified your KPIs and there measurements you will need a way to collate and manage the collection and reporting of the data. The data collection process should be built into the work process, and there are several options available to you.
Spread sheets
Spread sheets are woefully inadequate for any kind of KPI tracking other than single user KPIs. They have problems with access for multiple users, trend tracking or summarising the data – in addition they are extremely vulnerable to errors when being used for KPI tracking.
Small Databases such as ‘Access’
Access offers the ability through basic forms to collate the data from multiple sources; the data is in one place and can be used to create ad hoc reports. The downside is that specialist access knowledge in needed in house, managing users access, security
KPI Software
The most effective and efficient solution is to use a specialised Online KPI software application; these are now available on a SAAS model, allowing you to have multiple users accessing the online system. These applications offer many benefits including: real-time reporting, user friendly entry, security, alerting, dashboards and simplified setup .
by Stuart Kinsey
Stuart Kinsey writes on Key Performance Indicators, Dashboards, Marketing, and Business Strategy. He is a co-founder of SimpleKPI and has worked in creative and analytical services for over 25 years. He believes embracing KPIs and visualizing performance is essential for any organization to strive and grow.