Key Performance Indicators are the 6 to 12 key numbers that will tell you if your business is on track. They are like the dashboard in your car.
KPI’s will vary business to business and department to department and may change over time as a business evolves. A care home or hotel would track the average occupancy of their rooms, and the average rate per week that they are achieving. A lawyer or a plumber may track how many hours employees bill out of the working week. Changes in these KPI’s could highlight issues to address across a huge range, such as whether you need to improve marketing activities and quote management, have set prices right, have spare capacity, or may have cash flow pressures around the corner.
Many businesses may monitor cash at the bank (or remaining overdraft facilities) and the average days it takes customers to pay.
As we said it’s like your car dashboard. The car will be measuring a wide range of issues such as tyre pressure, fuel, oil levels, and engine temperature for example. As the driver you don’t want to check all these before every journey, so the car will send a warning if any of them get outside their optimum range.
Our job is to work with you to identify what these critical numbers are for your business, and then to put systems in place to record and report the information to you. All should have a target, with parameters for minimum and maximum levels, and triggers to flag up when any KPI’s fall outside their target range.
If your management information is just an annual or quarterly profit and loss account, then things may be happening in the business that you only see long after they have gone wrong. KPI’s give you control of the business so you can react quicker and drive its success faster.