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Why Measure at All?
As part of your introduction to business KPIs, you should have some idea as to why you should bother to measure at all.
- To know where you are in your business, and how to improve it.
- To build a business case for a course of action, or an investment.
- To determine the impact on clients or customers.
- To improve objectivity, and reduce reliance on opinion and rumor.
- To establish accountability amongst teams or team members.
- To ensure people are not working at cross-purposes.
- To celebrate success.
Where Performance Measures Fit
Introduction to Business KPIs — Definitions
- A Strategy: Longer term direction or scope that differentiates you you’re your competitors. (How do you make money or if you are not in a profit business how you achieve your organizational “end”).
- Goal: Something specific you work towards to achieve your strategy. (What you’ll do to realize your strategy)
- Key Success Factors: Those critical areas (or key work activities) we must focus on in order to be successful (achieve our goals). Some generic KSFs are:
- Quality
- Quantity
- Cost
- Time
- Safety
- Performance Indicator: A metric that tells you how you’re doing in working towards the achievement of a Key Success Factor.
- Result indicator: Measures outcomes or results
- Process indicator: Measure activities that lead to outcome or results
Introduction to Business KPIs: Good indicators
- Simple to understand and use
- Aligned with corporate strategies
- Promotes continuous improvement
- Controllable or significantly “influenceable”
- Examples of Good Performance Indicators:
- Tons per hour
- Absenteeism rate
- Time loss numbers
- Overtime as a % of salary
The Business KPIs you choose must be within your sphere of control or your sphere of influence. You may measure some things that are in your sphere of concern, but they will not drive your business the way that Business KPIs in the other spheres will.
Introduction to Business KPIs: Bad Indicators
- Are too complex
- Are not specific enough
- Not connected to larger goals
- Lousy production
- Bad attitude
- Bad safety
- Good overtime control
Introduction to Business KPIs: 3 things to remember
- There is never one perfect measure – look at a variety of things.
- Don’t let your metrics take on a life of their own. They should enable decision making and action.
- Let your indicators change over time. As you learn more about your business, and as your business changes you should allow your Business KPIs to change too.
Watch the ‘3-Minute Crash Course’ about Business KPIs (CLICK THE ARROW TO START THE VIDEO):
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