To understand what is KPI, let us draw parallels with football, you have your offensive line and your defensive line and the success of the team depends on the performance of both the lines. Similarly, in business the success depends on certain parameters or activities and these are used as characteristics on the score sheet for the entire performance evaluation.
For a business to succeed, it must have a balanced scorecard, which means that all its key performance indicators must achieve their goals and targets. Now, since you have understood what is key performance indicator, it is crucial to understand its importance in business analysis. Generally, business analysis is done to review the proceedings and evaluate the business to keep a track of the achievement of goals and targets which would help in designing the business plans the formulating future strategies.
The understanding of key performance indicators gives you the understanding of the entire business more or less as these KPIs cover all the aspects of business related for the business to survive and succeed. Therefore, it is also important to select the right key performance indicators as the efficiency of the business and the entire exercise of goal setting and formulating strategies is based around the KPIs.
Selecting the wrong KPIs means wasting a lot of time and resources in the analysis of parameters that are not of utmost importance to the success of the business, rather than working on the parameters that contributes the most to the success. In today’s competitive environment the primary objective of the business is to survive because there just isn’t enough room left for all the business to survive. The businesses are streamlining their processes to become more robust and agile to be prepared for any unexpected turn thrown by the markets, where concepts of cost cutting and improving the bottom line are getting precedence over the concepts of profitability and improving the top line growth, a proper selecting of the key performance indicators and accurate business analysis may be the difference between a business just manages to survive and a business that succumbs to the twists and turns of the markets. Thus, the importance of understanding what is key performance indicator better than your competition may just give you the edge to sail through the storm and fight for yet another day.
Key Performance Indicators are a collection of quantifiable metrics which a business incorporates in order to measure as well as evaluate overall business performance when it comes to achieving specific strategic and tactical goals and objectives.
As a result KPIs will be different for different companies based on their goals, objectives and targets. Defining the most appropriate KPIs for your business is a top priority which means that you have to clearly determine your objectives before you work on selecting the best KPIs for your business needs.
KPIs assist managers evaluate and understand how good their businesses perform. Selecting only a few metrics to incorporate in a report helps you cut the complexity in reporting and analysis. Effective managers recognize their particular requirements and understand what information to monitor as their KPIs. By using KPI reporting managers are able to identify and see where issues occur as well as build strategies for continuous improvement. Furthermore, business professionals evaluate KPI information to track the entire business and improve decision making.
Management continuously watches KPIs, like productivity metrics of financial ratios in order to measure and analyze the company’s overall performance. This specific information is normally displayed graphically by using charts, graphs, tables and other indicators to present the performance results with clarity so it is easy for managers to get a snapshot of their results. Based on the critical outcomes, the company can easily see whether it is actually satisfying the objectives or it is unable to achieve the required targets. When there is a gap in performance the dashboard report will generally show a note or warning by using an indicator which criteria and priority is set and determined by management. This approach to business reporting saves time and helps managers focus on improving performance instead of wasting time in the process of measuring performance. The dashboard can be used to track results over different time frame such as daily, weekly or monthly.
One of the major benefits of KPI dashboard reporting is the fact that it minimizes the cycle time required from data management, analysis, reporting and presentations allowing decision makers to be more productive and focused on the real issues in their business.
KPI reporting can be developed and organized as a reporting system by using various platforms such as information systems, spreadsheets and databases. While choosing the platform is important the most important part is how you organize and define your KPI reporting needs.
What is measured, tracked and monitored is more important than how it is measured as long as it doesn’t require ongoing time and efforts from the users. These days it is easy to improve and automate various tasks and get the results you expect from your business dashboard.
In addition KPIs can be analyzed at different levels and from different perspectives based on your reporting needs. For example, overall executive dashboard will focus on the top KPIs for the organization while functional dashboard like production dashboard will focus on the top KPIs related to supply chain, manufacturing and inventories. It is very important to incorporate reports from different levels into one reporting system so you can easily analyze the required data. For example an executive report can reveal an issue and the corresponding functional report such as sales dashboard, marketing dashboard or financial dashboard will help you analyze the relevant metrics in more details.
Next, your dashboard report helps you focus on the results. By continuously measuring and comparing actual results versus required performance you are definitely focused on what is important. Gap in performance can be easily identified, additional analysis can be performed and appropriate strategies and tactics can be developed in order to fix the issues on time – before it is too late.
KPI reporting helps managers at any organizational level, from operational and tactical level to the strategic overall organizational level. The timely input from your dashboard is the key information for your strategy planning, tactical planning, budgeting, business plan development and any important business decision you make on a daily basis. While it takes time to define and review your overall goals, define and organize your KPIs and develop your reports, it is at the same time one of the most effective and productive initiative you can take to improve your business.
Effective KPI reporting allows you to better focus on your business goals, objectives and targets. By using KPI excel dashboard templates you can create your professional business reports in Microsoft Excel in a matter of minutes: KPI Excel Dashboard
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