KPIs are your guide to understanding every moving part in your business, and might just be the most important part of management.
Too often I see owners fail to get an understanding of how their business operates. They fail to log any departmental metrics of their operations throughout the year, and they’re stuck with an idling business wondering where problems lay.
Key Performance Indicators, or KPIs, are a pertinent part of measuring the successes and failures of your business. Also known as a flash report or dashboard, a KPI allows business owners and managers to get an overview of how their business – or individual departments – is performing at any given time.
A KPI measures the goals of the business against the actual, quantifiable data over a specified period.
Not every KPI measures the overall performance of the business, however. Larger corporations may have multiple KPIs for every department or segment of the business.
Despite having multiple KPIs, every report should tie together into a single flash for the business as a whole.
Key indicators can differ for multiple businesses; a distributor’s KPIs will differ from a manufacturer’s, and so on and so forth. Even like-companies can have varied KPIs as not every business share the same goals and metrics.
When American Management Services works with clients, we to determine what they seek to accomplish in a specified timeline. Every business is unique, which feeds into the flash report. However, there are a few commonalities found in almost every KPI / flash we’ve worked on.
- Cash Activity
- Line of Credit
- Accounts Receivable
- Accounts Payable
- Company Payroll
- Equipment Utilization
- Bid Tracking
- Job Completion Status
- Labor Productivity
These indicators are present and tracked in most businesses for various reasons. In a flash report, these are placed under a magnifying glass and inspected with a fine-toothed comb. Done weekly, a flash report is meant to show you the key areas in which you are underperforming and allows time for correction.
The aforementioned indicators are present and tracked in most businesses. The purpose of a KPI can vary based on the goal set forth by the business. While most businesses will use flash reporting to measure daily operations, flash reports can monitor projects, risks, and employee measures.
Not every metric can be measured and scored in a flash report, as the data logged should be quantifiable and measured against a goal. Essentially a KPI shows you a highlight of all the moving parts of your business at once.
Financials and Post-Mortems
Responsible owners complete a financial analysis 10-to-20 days after the end of the month. This is called a post-mortem. A flash report, done weekly, gives some semblance of how the business operates in real-time.
Knowing just how much money is coming in and going out of the business on a weekly basis, gives you enough time to course correct. Rather than fixing a problem 20 days after the end of the month, you can make adjustments throughout the week based on KPI management tools.
KPIs measuring employee productivity won’t include data on morale since that can’t be measured and recorded as hard data.
Instead, you’ll find things like hours worked, revenue generated, overtime, and job completion status. Measuring employee work hours against performance can give a general idea of the amount of overtime necessary to complete projects, or if overtime is paid out for less productive work. For larger businesses, this can also measure performance for departments.
Most businesses have access to a line of credit, which should be used as temporary working capital. A flash report will monitor what the base loan amount is, how much the business borrowed against that amount, how much is left over, and what is to be done to reduce the percentage used.
If your goal was to reduce the borrowed amount by five percent, the flash report should show you where you lay in meeting that goal.
A KPI is as strong as it is versatile. From measuring your finances, and evaluating employee productivity to the status of a job in progress, a KPI is a guide to helping you achieve business success. Depending on what you want to accomplish in your business, your key performance indicators can shift based on goals, projects, and timelines.
You should already have in place a system of measuring the metrics necessary for growing towards success. If you need with one, feel free to reach out to me on Twitter @MoscaSmallBiz.
Source: Key Performance Indicators 101 & Why They’re Important
By Louis Mosca, Contributor
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