Who Needs Key Performance Indicators — KPI’sBy Mark Johnson
My current client’s business deals with the health care industry and each week we acquire key statistics in order to properly measure the performance of the company and its employees. Then with this information my client knows where exactly changes in the business need to be made. Together we have defined these weekly report statistics as our Key Performance Indicators or KPI’s and we refer to our weekly report as our dashboard.
In short, Key Performance Indicators are objectives that, if targeted, will add significant value to the business.
It is essential for any business, regardless of size, to have daily or weekly operating statistics — or KPI’s — so you as the owner can properly manage your organization. These KPI’s are unique to each organization since they are based on the specific culture and industry of the business. KPI’s should provide direction and serve as a bench mark or target for the organization so it can track performance within specific timeframes (weekly, monthly or quarterly), which ultimately results in greater efficiency and productivity.
How to Create Key Performance Indicators?
KPI’s that are well thought-out should follow the SMART criteria as described below:
In establishing your KPI’s, try to avoid measurements that are expensive or difficult to determine. Keep in mind that as the business climate changes, so should your KPI’s — they should reflect technological advances and shifting priorities. Also, some measurements are not as useful because there are no benchmark standards to cross-reference with, making the effectiveness of the statistic inherently limited. Finally, KPI’s should be understood as an accurate, but not precise, measurement.
Examples of KPI’s
Increase in sales per employee or location
Improve the net income or EBITDA percent to sales
Increase in sales (dollars or units)
Reduce employee turnover percentage
Increase the market share
Increase average revenue per customer
Improve inventory turnover
Improve cash flow by a percentage
In summary, every business needs to identify and measure results on a daily, weekly, monthly and quarterly basis to determine the direction of the business and help identify issues before they become much bigger and more expensive problems. Remember: you can’t manage something if you don’t measure it.