Key performance indicators

How can you use key performance indicators (KPI) to measure and help run your business? If you regularly report and investigate fluctuations in the KPIs in your business, you will often find problems sooner & find solutions faster than if you do not use this tool. Also, they are a great method of setting and measuring objectives for improvement by enabling the business to focus on areas that are crucial to success.

Identify the key measures in your business – those that are critical for your business to be successful. Have a sheet of KPI’s and a set frequency of how often each one is updated (daily, weekly, monthly). It is relatively easy to reflect on the key issues that fluctuate in most businesses. Think about the factors that can be measured in the following categories:

• Financial
• Manufacturing
• Distribution
• Productivity (not just manufacturing)
• Human resources
• Sales
• Economic environment

Update the KPI regularly and incorporate them into the ongoing reporting and management of the business. Include them in the budgeting process and report the KPI compared to budget.

Ensure that you investigate and take action on any KPI that changes from expectation. Challenge your management to improve on selected KPIs each month. E.g. Make February the month in which you challenge your management to improve days sales outstanding by 10% (and then illustrate the success by showing what that has done to cash flow).

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