February 27, 2012
Managers use numbers every day to measure the performance of their businesses. However, it’s easy to get confused because companies generate lots of numbers—many of them meaningless. The amount of revenue spent per roll of tape purchased may be interesting, but is it really relevant to the success of the company?
The key to good management is to determine which five or six numbers let you know, in an instant, the health of your business. Those numbers are your Key Performance Indicators (KPIs). The main benefits of Key Performance Indicators are that they keep the entire organization working towards common goals and they simplify the management of your company.
Not sure where to start? Look at your goals. Your KPIs must be aligned with them; otherwise you will not gain the relevant insights needed to improve your business’s performance. In a call center, for example, employee costs are the biggest expense and one of the most important drivers of profitability. Therefore, an important KPI is to measure payroll as a percentage of total sales. A report is generated after every payroll so it is evident, at a glance, where profitability is in relationship to the goal—without having to wait for month-end financial reporting.
Oftentimes managers use KPIs to manage staff. To ensure expectations are met, the KPI must be stated in simple terms, be easy to understand and have a measureable time frame for accomplishment. This will ensure that your employees get it right the first time.
Once you have your Key Performance Indicators defined, ones that reflect your organization’s goals and are easily understood, you will start to measure the right numbers for your company. Good KPIs will help your staff eliminate useless activity and ultimately keep everyone on track.