Linking KPIs to business goals
How do you currently track and drive your business?
- Financial Statements – Profit & Loss and Balance Sheet?
- Cash flow forecast?
- Job Profit & Loss?
- Financial Budgets
- The whiteboard?
- Are you satisfied with the KPI’s you have?
Measure, manage, improve…repeat!
‘If you continue to do what you’ve always done – you’ll always get the same result!”
Which is fine if you’re not interested in growing your business, but in our 25 years of experience working with small and mid-sized businesses, the vast majority of business owners list: ‘PROFIT & GROWTH’ as their top goals.
The Learning Cycle
The Learning Cycle when repeated continues to bring about improvements in effectiveness and efficiencies in your business, and embeds long term knowledge within the organisation.
“Because know how and processes are embedded in a group of people, it is difficult for other companies to copy easily. This gives you sustainable competitive advantage.”
What are KPI’s?
A KPI is any measure or information:
- Relating to the key drivers or key results for your business
- Which helps you to drive the business to greater efficiency and effectiveness
- Which may be financial – revenue, costs, profits.
- Which may be non financial – defects, billable hours, lost time injuries, customer retention.
Linking KPIs to Business Goals – a strategic view
KPI’s work best when they are:
- Linked to business goals and strategies.
- Linked with decision making processes and actions taken.
Appropriate KPI + Appropriate Action + Correct Timing = Targeted Result
Business goals may be for short term objectives, e.g.
- Working overtime to get a job done on schedule – adds to labour hours and cost.
- Taking on contract labour.
Business goals may have long term objectives, e.g.
- Increasing permanent staff head count – to cope with business growth.
- Staff training – to improve quality and customer service.
Rather than wait for month end accounts and information, the best and most effective KPIs are those which lead to quick decision making. This is because key results of a business can be impacted by action during the course of a week or month.
- Sales order book for installations – when sales department is not bringing enough jobs in, then action must be taken to increase sales through different marketing and sales initiatives.
- Individual staff productivity can be tracked weekly, and action taken during any month (labour scheduling, etc) to increase billable hours.
- Installation project costs – materials and labour can be tracked each week relatively to project budgets, and actions taken to control/reduce costs.
Think of how you use KPIs during the course of a month instead of waiting for month end accounts.
Month end accounts and other post event information are often more useful for forward planning.
- Action to reduce a company’s cost structure.
- Pricing strategies.
- Expansion strategies & business funding.
A key part of the Learning Cycle is the collection or calculation of KPIs, and these are used to evaluate how well a company is going in its processes and projects. It is very useful to adopt this principle with your staff in the key drivers of your business. Using this in conjunction with Quality Assurance is also recommended.
KPIs need to be reviewed as time goes by because business goals and strategies change. Some KPIs may need to be modified or become obsolete, and new KPIs developed.
The continual review and use of KPIs in conjunction with business goals, results in continuous improvement, and these benefits result in an efficient profitable company.
The Boss as Leader
In any business, the top manager or business owner must be engaged in the goals of the business. In addition he or she must be 100% committed to the Vision, Mission, Core Values and goals of the company.
For KPIs to be useful in driving a business, the sponsorship of the top manager is vital.
- Businesses have varying objectives and strategies.
- Tailor KPIs to your company’s goals and focus on the key drivers.
- The top manager must work closely with his/her staff to develop and use KPIs.