The best way to improve profit is to know what are your ‘Critical Success Factors’ (CSFs). These are the key things that go on in your business, that without them the business can’t really operate or severely slows down. For example if you run a service based business, they are the people who provide the service. You need to ask yourself …
“What difference would it make to the following if these CSFs were compromised?
- Service Development
If service staff is a CSF what aspect of what they do is important?
- Chargeable time
- Quality of work
- Staff competency
- Customer complaints/satisfaction
Let’s consider how we could measure the effectiveness of the five CSFs above.
Service staff chargeable time can be measured by having them fill in timesheets or use an app to report on time spent on jobs.
- Quality of work can be measured by
- On time completion of jobs
- Number of defects
- Service met with customer requirements
- Downtime can be measured by getting service staff to fill in timesheet for time not spent on chargeable work e.g. admin, travel, other.
- Service staff competency can be measured by number of hours spent on training.
- Customer complaints/satisfaction can be measured by a survey or simple follow up call to a customer to gauge their level of satisfaction with the job.
These measurements are sounding like Key Performance Indicators (KPIs) aren’t they? In fact they are what is commonly known as ‘Leading KPIs’ i.e. those that don’t measure results, but ‘drive’ results. ‘Lagging’ KPIs are those that ‘measure’ results e.g. job profit, overall business profit, bank balance, outstanding customer payments etc.
If these CSFs can be measured with KPIs, the next question is HOW do we measure them? We could employ someone to run around and ask lots of questions or gather information from spreadsheets or manual documents.
This isn’t a very efficient way of going about it, a better way is to replace their time with a system to do the work. The answer is a ‘Business Performance Management’ system or ERP system, as they are known!
The value of such a system is that you enter information into it once and it can be extracted in many ways and appear in many reports. For example you get service staff to enter time spent on various activities into the system and you can get the following information:
- Number of chargeable hours
- Number of hours spent fixing defects
- Actual Labour hours versus budget for each job
- Lost time injury hours
- Number of meeting hours
- Number of training hours
- Number of travel hours
- Number of admin hours
By measuring these activities you get a real insight into how much time is being spent on non-chargeable items by all service staff. This might give you information that convinces you to invest in:
- Training to minimize defects
- Processes and training to minimize injuries i.e. WHS
- Better planning and management of meetings
- Better planning and management of travel or job scheduling
- Employing someone else to do admin work or ways to minimize it for service staff
You can quantify the potential benefit by multiplying the charge out rate of each service staff person by the number of hours saved on non-chargeable activities.
For example if you employ 10 service staff and you could save say 5 hours a week and they get charged out at an average of $100 per hour, that could be an extra $5,000 in potential sales per week or say $240,000 per annum (based on 48 weeks per annum)!
And that’s just the service delivery side of things! A good ‘Business Performance Management’ system also enables you to measure marketing and sales e.g. number of marketing leads from particular sources or quotes done versus jobs won. It helps you to efficiently send out regular marketing messages to clients and prospects. Some other KPIs able to be measured could be
- Number of jobs missing deadline
- % jobs completed on time
- % jobs with defects
- Cost of jobs running over budget
- Cost of jobs running past benchmark Gross Profit%
When you start to get this type of intelligence, the next step is to implement projects to improve them. Once you’ve done this, you reap the rewards for the future i.e. once you’ve trained someone to do something better, they keep doing it that way and can teach others to do the same. So the benefit is exponential!
The key to reaping the benefits, is to select the right system, implement the right KPIs, get staff on board, properly use the reports that come out and manage improvement projects – it’s all in the implementation!
Download our FREE E Book ‘Using KPIs to Grow Profit and Cash’ to help you determine what are the KPIs for your business and advise on how you can manage and measure them to make a real difference to your bottom line and business value.