Daily Management with KPI's

You all spend a lot of time and money in getting your annual accounts prepared and squared away ... who could forget that! Those accounts are helpful for keeping the tax and bank people happy, for selling your business and for bringing in new investors/partners.

However, even the most efficient of you don't have your annual accounts done till two months after the end of the financial year - 14 months after that year started. These accounts do have their uses (as above) but you cannot run your business on a day-by-day basis from them - they're too blunt an instrument for such a fine job.

Many of you do (or have done) monthly accounts and these are, at your most efficient, done three weeks after the action, so to speak. These monthly accounts are a finer tool for the job but, like your annual accounts, take a lot of effort to prepare - accounting for debtors and creditors, counting stock (inventory) and so on.

The huge effort and cost in preparing accounts and the fact that they're available long after the action, is the main reason KPI's were invented.

What are KPI's
KPI does not stand for Kerry Packer Industries! KPI stands for Key Performance Indicator - a big phrase that means that you choose, in your particular business, what the key or essential ingredients are to making profit. Every business is different so KPIs vary.

KPIs aren't always financial indicators. A KPI is a way of measuring a particular business process, a bit like evaluating how well the company is doing in that particular area. By recording and analysing KPIs company-wide, the business owner can see at a glance which processes need attention.

How KPIs can help?
KPIs provide the detail measures of your business that purely financial measures can't. For example, what use is a great profit when you're losing customers hand over fist through slack customer servicing? If, however, you were using KPIs to measure ...

    * What customer deadlines have been missed?
    * What is the conversion rate from quotations to sales?
    * For which department were customer complaints received?
    * What is the direct cost of complaints?

... then you would already have seen why you were losing customers, how much it was costing you and exactly where you would need to start making some improvements.

Sample Customer KPIs
    * What would be the impact if a major customer failed or left the business?
    * What percentage of sales is being exported?
    * What is the level of customer complaints?
    * What delays are being caused by the Quality Assurance System?
    * What are the results of customer surveys undertaken?
    * What customer deadlines have been missed?
    * What is the percentage of complaints to sales per department?
    * What is the number of new customers per department?
    * What is the average sale amount to new customers?

Surviving in business today is more about measuring the value you add [see previous article Adding Value to Customers]. This means measuring how well you are performing against your business goals and objectives and, significantly, where you can improve.

Your accounts will tell you if you're making a profit or not and they may give you an idea of where problem areas may be. KPIs, on the other hand, tell you exactly what is going wrong, where it is going wrong and they usually help you in deciding what to do about it.

Ask me if you want to set up useful KPIs for your business - particular KPIs will be more helpful than others, for your business, and there are simple ways of instituting and analysing them.