By
Michael Derin
Founding Partner and Chairman, The Azure Group
Key performance indicators (KPIs) provide the measurements. Their metrics translate detailed information into a simple indicator that allows decision-makers to assess the current situation and act quickly and appropriately.
Why are KPIs important?
KPIs are one of the most important guideposts for any business. They are business performance metrics determined by management and reflect goals for all levels of the organisation. It’s important to note they aren’t the goals themselves. They’re measurements based on data and provide context to your strategic plans.
KPIs must be monitored and reviewed regularly to be of any value to your business. Most businesses set KPIs before the start of each financial year. This is good business practice, as it provides guidance for the year ahead. You need to be ready, willing and able to deliver on your KPIs. This can be problematic if you haven’t got the right resources, or things change in the business, and these things affect your ability to meet the KPIs.
The challenge for most businesses is how to cover the gap created, achieve KPIs for the year and keep your team motivated and wanting to achieve the goals for the rest of the year.
MONITORING AND MEASUREMENT IS KEY
Reviewing your KPIs monthly is good practice. You should be getting a monthly management report that lets you easily review how you’re doing financially and analyse your results. For e.g. if you proposed completing 20 projects, but have delivered 16, or you were going to implement a new operating platform, and you haven’t, this could impact delivering on your long-term business goals.
Regularly reviewing KPI targets will identify where the gaps are, allowing you the remainder of the year to address them. Break the review down to really understand the gaps. For e.g. if you're meeting sales targets but your gross margin isn’t where it should be, take a look at your pricing. If you have the resources but you’re not selling as much as you expect, examine your advertising or marketing strategy.
Here are some core KPIs to consider and what to do if they’re not being met:
If sales targets aren’t being met, look at initiatives and resources. Consider your approaches to advertising, marketing, people, pricing, and your service or product. Perhaps you can offer an incentive to help boost sales.
If your profit isn’t where it should be, consider staff, revenue, expenses, service and market conditions. Consider areas you can reduce operating costs to improve cash flow.
If your revenue is lacking, consider pricing, sales volumes, input prices purchases, and other costs of selling, such as freight.
If you’re struggling to meet your KPIs, it’s critical to review:
- where you are
- where you want to go
- how you’re going to get there.
Once you’ve got your head around these, you can set strategies to help achieve goals and review them each month.
Also set yourself a big, audacious goal. To help achieve it, get accountability, responsibility and engagement from everyone in the business.
When achieving KPIs is a breeze
Even if you’re exceeding your KPIs, you always need to consider risk management. Often companies growing at a rapid pace do so with increased risk. You need to make sure you have a sustainable organisation that can weather whatever is thrown at it and continue to grow and prosper.
If achieving KPIs is never a problem, it may be you haven’t set challenging enough KPIs for the business. The downside of this, is your business isn’t being challenged and therefore may not be achieving its full potential.
The following quote from US Hall of Fame baseball player Yogi Berra sums it up nicely: “If you don’t know where you are going, you’ll end up someplace else.”
Michael Derin
Founding Partner and Chairman, The Azure Group
Michael Derin has over 28 years’ experience as a qualified Chartered Accountant and Corporate Advisor across Asia-Pacific with a track record of leading multi-million dollar projects to success.
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