Choosing the Best KPIs
The right place to start selecting and deciding on what overall performance signs will be the key to evaluating the success of a certain organization must be the ones that the management utilizes on a regular basis for managing the company performance.
Most business managers often use reports with their top financial KPIs, although they may well be presenting business strategies like increasing client satisfaction, or getting and keeping the top talent in their organizations. The reality is that most business presentations, analysis and reports are related to financial performance.
An issue however is whether or not the performance metrics or the KPIs already introduced to and used by the company executives are the ones that will help them continuously and on time evaluate the performance and improvements towards the well defined business strategies.
The assumption is always that the data is already available to be used for measuring and monitoring the KPIs. Fact is that in many cases data is not readily available and accessible for reporting. The data collection and management in many cases is an initiative on its own – to develop a platform for collecting the required data.
Should you limit your process of KPI selection based on data availability?
Many companies are simply not able to chose and measure the right KPIs simply because the access to the required data is an issue. There is a difference between once in a while analysis and presentations on one hand and continuous KPI reporting where data availability is key to success.
Industry KPIs vs company / business specific KPIs
The example of the manufacturing vs financial firm KPIs above illustrates the point that each and every industry and even a sector has its own key performance indicators.
These type of business metrics can be easily selected as the top indicators by the business however the question is whether managers should limit their KPI selection to their industry metrics. The answer is that managers must work on choosing the right KPIs for their organizations in addition to their industry metrics.
Every successful business has its own specific strategies and business model and since they are (and they must be) different and unique in order to achieve above average performance, managers must find the right fit between their reporting metrics and their strategies and business model.
The process of selecting the KPIs for each organization must start by defining the overall strategy, goals, objectives and targets. The selection of KPIs is driven by the strategy and should quantify the goals and objectives and convert them into specific measures.
One example is, an organization within the financial industry may decide to use customer retention and asset management as the top KPIs while an industrial or manufacturing organization may decide to choose KPIs like capacity utilization or capital expenditures.
What is the right number of KPIs to be used?
Many business managers start the process by asking how many KPIs they should choose. There is no right / specific number which works for any business.
The number of KPIs will vary based on the industry and the size of the business. In most cases the top KPIs used in management reporting is between 6 and 12.
This doesn’t mean that management should stick with only the top KPIs in their reporting however the top selected KPIs are the most important measures for the business. In addition your top KPIs will be driven by additional metrics which must be reported and evaluated continuously.
For example, while customer retention may be a the top KPI for a service company, in addition other supporting metrics must be monitored and measured such as average customer life time value, average transaction and average lifetime of a typical customer. These supporting metrics help managers evaluate the reason behind the fall or rise of each of the selected key performance indicators.
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