The primary purpose of performance measurement is to improve business performance.
There is always a danger when creating KPIs to identify all the things that are easy to measure, subsequently collect and report on all the associated data, then end up in the situation were none of it makes any sense.
However, with a little planning and a few basic rules, selecting the right key performance indicators and implementing them effectively should be a relatively pain free process.
Why KPIs are so 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. They can provide instant notifications of changes to trend, and with a proper monitoring mechanism; KPIs can offer the business valuable information to react to events that significantly impact the business.
Management can then make informed decisions with valuable performance information on productivity levels against target.
Finding the right KPIs for your business
It is imperative to choose KPIs that relate to aspects of your business that can be controlled. They should also be linked to the high level goals of the business.
For example, the price of oil maybe a vital factor for the performance of your business, but this cannot be used 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 measurement.
Typically, effective KPIs include return on investment, profit margin, sales figures, customer complaints, appointments, unique website visitors, conversions and cost per lead. However they may also be industry specific or required for legislative purposes.
The process of defining your Key Performance Indicators
There are essentially two main ways you can use KPI’s to improve business performance.
Firstly, you can use them to highlight potential problems and opportunities; secondly they can be used to set targets to focus departments and employees on delivering 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)?
3. 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:
Spread sheets are woefully inadequate for any kind of organisational KPI tracking, however a single person business with a limited number of KPIs could derive some benefit. However, as a general rule; spread sheets have inherent issues with access for multiple users, trend tracking or summarising the data – in addition they are extremely vulnerable to calculation errors.
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 user’s access and security can also be resource intensive.
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.