Don’t Sail Blind… Measure and Improve Performance with KPIs

Key Performance Indicators (KPIs) is a well-used term in business but if you ask people what it means you’re likely to get different answers. KPIs are what you use to measure performance in companies, business units, projects or individuals. They are the measure(s) that help you understand whether you are achieving your results. They can make a huge difference to the success of a business, so should be set wisely. KPIs should be strategic, relevant and meaningful.

When setting KPIs you should be linking them back to your company’s strategic goals and objectives, which form part of your company’s strategy. Identify and develop the most meaningful indicators to steer you towards success. This is vital for decision-making, by breaking KPIs into a small, manageable number of key indicators.

The increase in data means that companies have more options for measuring performance than ever before. They have more real-time data at their disposal. This gives companies more options for analysing and reporting. As a result, there are many different indicators for tracking performance.

However, KPIs are only really effective if the right people get the information they need – in a way they can understand – so that they can make better decisions.

HISTORICAL VIEWS HAVE THEIR PLACE

The problem is that while businesses want to be moving forward, most reporting provides an historical view, events that have already happened (for example, last week, last month, last quarter or last year).

Businesses still need to have backward-looking KPIs to make sure that they are on track towards their set objectives and highlight areas that may need attention, however, companies can now more easily predict future performance.

BENEFITS OF FORECASTING

In today’s business environment, it is more important than ever that Leaders are able to make informed decisions and improve performance but not just that, they can use information to help give their business a competitive edge.

It’s now possible to track what’s happening right now, in real time, or even predict future performance more accurately. This is crucial to surviving in a changing and competitive market. Using the right KPIs you will be able to see more quickly whether you are on track and adapt and change accordingly. Unfortunately, where some managers fail is using the same common KPIs that are used by other businesses. Stop! They must relate back to your strategic objectives.

Forward-looking views may allow for course correction.

KPI DASHBOARDS

KPI dashboards are best considered from an operational and strategic perspective.

An operational dashboard allows you to check the day-to-day processes and outputs of your business to make sure everything is running smoothly. It provides information that allows you to fix issues before they become problems and affect performance. An example might include a call centre KPI dashboard which shows the number of calls, average wait time, on hold, etc.

Your strategic dashboard, on the other hand, looks to the future and seeks to identify obstacles and challenges that you may face on the way to achieving your strategic goals, such as profit projections, market share, growth, etc.

Both types are important for business success.

DECISION MAKING TOOLS – WHERE TO START

Strategy
As a starting point, go back to your strategy. If it’s too long, condense it to a one-page strategy of clear objectives, then you can identify what you need to have in place in order to meet your objectives.

Key Performance Questions
Ask, what do we need to achieve? Not, what data do we have available to us.
Take each strategic objective and identify one to two Key Performance Questions (KPQ) for each. By doing this step you will be able to work out what data you need to collect in order to help you answer your KPQ. For example, most businesses want to make a profit, so a KPI could measure which areas of business are the most profitable, this could align to a strategic objective to increase turnover.

Set clear goals using a SMART framework (Specific, Measurable, Achievable Relevant, Time-Bound).

What data do I need?
Identify the data that you need in order to answer your KPQs. Everything can be measured!

Evaluate what you have
Now you know what data you need; the next step is to identify what data you already have and what’s missing to aid you on your journey. Also, find out what KPIs are already being collected around your company by various departments/business units as you may be able to make a few changes to the data collection process in order to get what you need.

The right supporting data
As an example, industry information, demographic data, trend statistics, etc., could be used to support the findings of the data you are collecting for your KPIs that is relevant to your strategy.

Measurement methodology
So now what? You know what data you need but how do you collect it and how often? What measurement methodology will you use?
Data has a shelf life, so make sure you align when you collect it with how and when the business uses it, i.e., how often the business reports. If you don’t do this, then the information loses relevance.

Ownership of KPIs
It is important to assign owners to KPIs and there are two types: interpretation of data and data collection.
Someone needs to own interpreting a KPI and what it means for the business as well as monitoring it to check for change.
Data collection can sometimes be automated but there is usually some human element in the data collection process.

Communication of KPIs

Understanding
Engage the workforce by outlining what you are collecting, why and how this links to the company’s strategic priorities that they will relate to.
You therefore need to ensure everybody understands how the metrics you are gathering are linked to your strategic priorities. This will increase ‘buy in’ – how personally involved and enthusiastic your staff feel about your priorities – and ensure that constant review and improvement are at the heart of everything your people do. If you simply tell everyone that they have to collect a whole heap of extra data from now on without explaining why, you are likely to end up with a very cynical and disengaged workforce!

Methodology
Insights should be consumable, informative and actionable. Therefore, do not bury insights in long winded reports.

Really effective visualisations clearly illustrate trends and variations in data and engage the reader, with an explanation of the insights so that the nuggets of wisdom extracted from the data are clear.

KPI dashboards are commonly used and if done correctly are a great way to condense information into a meaningful format. It’s a simple visual display of the most important information that decision makers need to help them achieve their objectives.

It won’t count for anything unless your organisation reports and communicates the KPIs to others effectively.

Review, review, review
Don’t collect data for data’s sake and waste hours of time in the process doing it. If a KPI is not useful to your business in making better decisions, then it’s just noise. Therefore, it’s important to regularly review the metrics you are using.

TO WRAP UP

In conclusion, KPIs will only work if you choose the right ones, then they become an important tool for improving your business, making better business decisions and gaining a competitive advantage. They must be used regularly to analyse what they are telling you.
Following the steps outlined in this blog should help provide a simple framework for implementing KPIs in the right way for your business.