Ask us how: Key Performance Indicators

Posted by Michael Derin
Published on October 16, 2013 under NSW Business Chamber Partnership

Once an organization has analysed its mission, identified all its stakeholders, and defined its goals, it needs a way to measure progress toward those goals. Key Performance Indicators or better known as KPI’s are those measurements.

Most businesses set KPI’s before the commencement of each financial year and now’s a key time to review and monitor your progress leading in to the new year to decide whether you need to reforecast your plans. A huge 67% of large businesses do not achieve their strategies and KPI’s and most of this is due to lack of monitoring and taking accountability and responsibility for the targets established.

BUSINESSES AND MEETING KPI’S

I feel that many companies set lower KPI’s for the current financial year, due to the economy and now what they have found is the economy is stronger than expected and their business is achieving their KPI’s. 

Most are winning projects although it is taking slightly longer to bed down then in recent years.  Dependent on what industry you’re in, some are faring better than others.

With this strength in the market, businesses are now looking at how to do even better over the remainder of the financial year and are setting more challenging goals.

IMPORTANCE OF REVIEWING AND MONITORING KPI’S

Generally speaking you need to review your KPI’s regularly.  A good business would be doing this on a monthly basis. 

The whole purpose of doing a review is about monitoring your KPI’s. 

For example if you said that you would have completed 20 projects but have only delivered on 16 or that you were going to implement a new operating platform or P&Ps and you haven’t this could affect you achieving your long term goals as an organisation.

You want to be looking at your KPI targets & strategies to review where the gaps are so you can address for the remainder of the year.

STRATEGIES TO ADJUST KPI’S

It’s an interesting statistic that 63% of strategies get delivered in a year whilst almost 40% of strategies are normally not implemented – this means that businesses are taking twice as long to do what they say they are going to do. 

This is a big reality and cultural test for an organisation to achieve its goals.

An organisation needs to be ready, willing and able to deliver on their KPI’s.  Often they haven’t had the right resources or things change in their business that affects their ability to meet these KPI’s.

The challenge for most businesses is how do you not only cover the gap created but achieve KPI’s for the year whilst keeping your team motivated for the rest of the year and wanting to achieve the goals.

I suggest breaking it down and really understanding the gaps.  It may be that your meeting your sales targets but your gross margin is not where you expected it to be.  You need to then look at your pricing.

It might be that you have the resources but you’re not selling what you expected to sell, it could be that you’re not advertising or marketing the product enough.

Sales KPI’s – key one really looking at initiatives, resources, why you haven’t met these, is it advertising is it marketing is it people, pricing, service/product,

Profit Centre KPI’s – if you’re not meeting those is it staff, revenue, expenses, service, market conditions

Gross Margin KPI’s – if you don’t meet then is it pricing, sales volumes, input prices purchases, other costs of selling freight etc.

BUSINESSES EXCEEDING THEIR KPI’S

If you are exceeding your KPI’s well done that is fantastic.  This always makes me nervous though...

You need to keep one eye on success and one on risk management. 

Often companies growing at rapid pace often do that with increased risk. 

You need to make sure that you have a sustainable organisation that can wether the growth and the business as a whole is growing successfully as well.

The other side of things is that a business may not have set challenging enough KPI’s.  This probably means that your business is not achieving as much as it can potentially achieve and is not being challenged.

ADVICE FOR BUSINESSES STRUGGLING TO MEET THEIR KPI’S

The most important piece of advice I can give businesses regarding KPI’s is:

• You need to firstly understand where you are, where you want to go and how you are going to get there. 
• once you have your head around that you can set strategies that will help achieve those goals.

For example, say you want to sell 1M gadgets but currently only selling 25,000 gadgets then you need to set strategies that will help you get to 1M.

You also want to set yourself a big audacious goal.  You need to take accountability and responsibility for getting there throughout the business and have everyone engaged in making it happen.  Once you have people’s buy in you can work towards achieving those strategies and goals.

Businesses that struggle working through their KPI’s need to ensure they are reviewing on a monthly basis.

I would assume most businesses are getting a management report each month, you are reviewing how you are doing financially and analysing your results.  At this time you should be also reviewing your strategies and KPI’s as you can be making decisions and it is transparent.