six-reasons-you-need-to-pay-attention-to-key-performance-indicators

Almost everybody I talk with about making their business better, more successful and sustainable has heard about key performance indicators. It’s also one of the most measurements I see.

Here’s the problem. The key performance indicators that you’re probably working with are historical and tell you nothing about what’s going to happen in the future. Let’s take a few minutes to think about what a good key performance indicator would be for your company.

Make sure your KPI’s are forward looking.

Too many times I see KPIs using historical measurements and not use forward-looking measurements. If you’re using numbers from your profit and loss statement or balance sheet you’re talking about history. Instead, think about what numbers will tell you about what’s going to happen in the future.

You might want to think about using things like backlog, how many sales calls are being made, how many proposals are being presented or efficiency measurements you might use for different business processes. All of these can help you understand what’s going to happen in the near to mid future. These are the things that are worth monitoring.

You still want to look at your balance sheet and profit and loss statement. They just aren’t going to tell you anything about what’s going to happen in the future.

Start with normalizing

When you first start measuring these numbers you might find that they’re all over the place. The first step is to make sure you normalize what’s actually happening in your company. This means you have to look at the outliers and find out if it’s within expected return or outside those parameters.

You’ll find this out by taking a look at the numbers and seeing if they’re within three standard deviations. If they are, you’re fine. If they’re outside that level, then you need to do something to normalize the numbers before you start a process improvement strategy.

Put your KPI’s into a 13 week rolling spreadsheet

I find and I think you’ll find that if you use a 13 week rolling spreadsheet with a general idea of what your goal is you can look and see if your trend is moving in the right direction. If you use less than 13 weeks you’re likely to get an incomplete picture. If you use more than 13 weeks, there’s a good chance you’re looking at more than you need to.

After all the purpose of using a KPI strategy is to have constant improvement and not look at every possible data point.

Review your KPIs with your key staff weekly

Another mistake I see people making is they don’t share the numbers with their staff. I don’t want you to make that mistake I want you to have a weekly meeting and part of your weekly meeting will be to see if your KPIs are on or off track.

Don’t bother spending any time on KPI’s that are on track. Only spend time on the KPIs that are either under or over performing.

Know why they out or under perform.

Almost all the time I see people like you obsessing about why a KPI is underperforming. Yes, you do want to know why it’s underperforming and at the same time it’s even more important to find out what causes one of your measurements to outperform.

As human beings we tend to focus on issues that we see as being bad. Too often we don’t bother following through on the activities where were over performing and this is where real opportunity often lies. Don’t be one of those owners who only focus on what needs to be fixed. You might find that your KPI’s that are over-performing are where the real opportunity lies.

Make and monitor plans for constant improvement

Finally, the key here is experimentation. If your KPIs are great find a what you’re doing and build on it. If your KPIs aren’t so good, then it’s time to try experiments and see what might bring a better result.

My mantra when I’m trying to improve things is fail fast/fail cheap. If I do this, I’m going to be making lots of small experiments and some of them will work. Just remember the vast majority won’t.

So what do you think about your KPI program? Is it the type of program that’s bringing you the results you want? If not, why don’t you try some of my suggestions above and focus on predictive numbers in your company. You just might find this is one of the keys to create a sustainable business and one that you’re in love with.

Leave a comment below and let me know what you think.


Topics: kpi, For business owners, Business Strategies, Key Performance Indicator, Continuous Improvement

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