Key performance indicators are an accepted term for businesses. The challenge has always been how to develop enough to support the measurement and management of your business, whilst avoiding creating so many that the collection and analysis feels like another business in itself. During my time as the Head of the Benchmarking Centre of Excellence at KPMG, I would advise my clients on keeping a balanced set of four KPIs relative to the business, function or process they were management. Working with MDs of SME businesses, I find myself frequently reverting back to these basic principles. They are:-
- Quality. This is measured in terms of customer satisfaction, employee satisfaction and/or product quality if you manufacture goods.
- Financial. Traditional KPIs are ROI, profit/turnover per employee. They could also be high level cost such as operational/overhead costs as a percentage. If you are in a service business it may be cost or turnover per employee.
- Cycle Time. This is the average throughput time of anything that you process. Recognised KPIS are the time from Purchase to Pay, or Order to Sales. Cycle time can be applied both for your activities and also the efficiency of your processes, as in Debtor or Creditor days sales outstanding.
- Productivity. The final element of the balanced set looks at productivity. For example, sales per salesman, products per employee or clients per employee.
The reason for having all four types is that only when you review them in total, can you see where the performance drivers truly lie. If only one appears out of line, the cause can be tracked back to that particular measure. For example, if cost is out of line, it may be that currency changes are driving that KPI. This is useful information of course, however if all four show poor results, the case for looking at internal drivers of performance is stronger. A balanced set of KPIs delivers more understanding of the performance drivers. This of course compliments the Balanced Scorecard approach by looking at the next layer of detail around KPI formulation.
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We are all sitting indoors, hands clasped around hot drinks, glued to the television’s “disaster” style reporting of snow. I am one of those creatures who is permanently cold with fingers so icy that I have to warn anyone before shaking hands with them. I can confess to actually not packing away any of my fleeces this summer. So,l I am in awe of our builders. They have been turning up at 7.45 a.m every morning and working diligently day in and day out, building our cart-lodge . Through the rain, wind and driving snow. It was only when it started to blizzard that they put sweatshirts on over their T-shirts and one or two jammed a woolly beanie onto his head. What fine examples of stalwart British builders – taking the term “stiff upper lip” to a new dimension! Regards, Rosemary