You most probably are familiar with the term Key Performance Indicators, or simply KPIs. KIPs are guides specially designed to measure the performance of business objectives previously established.
In this order of ideas, decision makers usually measure such objectives in percentages of execution. Same, decision makers trust in KPIs because they have proven their great utility to follow up on tasks; measure performance; detect deviations; and comply with Service Level Agreements.
In this sense, the uses of KPIs extend to all the sensitive areas of the companies; and they are really useful to create real statistics that can be perfectly translated into financial terms that respond to corporate interests. But in any case, you have to very careful when creating them.
First of all, we need to put ourselves in context and understand that KPIs created to measure the activities of the Sales Department are different from KPIs that value the activities of the IT Department.
However, they handle a common nomenclature displayed either in the Control Panel or in the Scorecard (they have a subtle difference that we will see later).
In summary, KPIs are a communication bridge that connects vision; mission and objectives of each department with the company; and they do not respond the same in each particular context or department. Let's see how to create and organize them in the most optimal way.
Among the most used KPIs, we find:
First of all, we find the financial indicators. With them we measure liquidity; indebtedness capacity; solvency; etc.
Following, we find economic indicators. They allow to measure costs; incomes; expenses; cost-effectiveness ratio; etc. Together with the financial indicators, they are ideal for the Finance, Treasury and Accounting Departments
Third, we find Service and Attention indicators. They make easier the measurement of average time for customer service (via telephone, face-to-face, virtual); orders in transit; claims; new clients; etc. Given the nature of these KPIs, they suit better in Customer Service; Sales and Marketing Departments.
Next, quality indicators allows us to delve in deeper levels of analysis. They allow us to measure percentage of deviations; production defects and their processes; quality levels of the final products; number and types of failures in equipment and processes; service interruptions; etc.
Together with production indicators, quality indicators are ideal for giving insight to medium and high managerial positions. This is the reason why they are their favorites when making executive decisions related to industrial processes.
Also in this list, we find the indicators for production departments. They allow us to evaluate levels of production and efficient processes; value the production materials and other similar aspects.
Finally, we reach logistics indicators. Through them we measure orders; deliveries; inventory rotation; times of delivery and replacement and similar. They are ideal for the departments of dispatch and warehouse.
Now, for you to use congruent KPIs to measure whatever you need; you must define and program them correctly into logical units. In this sense, you will find such definitions in the individual objectives of each department; and they should be governed by these principles:
This is the logical starting point to create suitable and powerful KPIs. The first thing you need to do is identifying the goals they pursue.
At this point, you also need to establish responsibles and decision makers for compliance (supervisors and executors). With them, you will be able to make informed decisions and taking actions related to the financial health of your company.
Following, we must establish what activity and concepts we are going to contrast them to so to to calculate values in terms of optimal; acceptable; improvable and unacceptable.
Next, we address to the mathematical methods to translate KPIs into financial terms. This action will give us more tools to calculate the Return of Investments (ROI); and similar aspects for the profitability of the company.
Finally, we need to determine how often we will check and measure the progress of each task. Generally speaking, measurement should be done on a daily basis; however, it is highly recommended to prepare periodic reports to collect those measurements to perform supervisory tasks. This action helps us define the relevance of each KPI we use.
As our area of expertise are IT and Digital Security; we'll give you a practical example of using KPI for IT Departments.
Also, to determine the efficiency and effectiveness of the KPIs for the IT department; we must contrast them against other indicators. We recommend doing so against:
There are two ways to organize KPIs: In Scorecards or in Control Panels (Dashboard). Although the trend is to use them indistinctly; they have a subtle difference: Scorecards measure the progress and achievement of objectives according to the KPIs; while the Dashboards measure the performance to throw numbers and metrics.
In both cases, we recommend following these best practices to keep them always organized:
Also, try to comply with these characteristics that facilitate their manipulation:
As you can appreciate; The use of KPIs brings you a little closer to the excellence you aspire to. And we also know how much it demands to create and update them.
GB Advisors helps you make and carry out your plans to establish powerful KPIs that help you boost the overall performance of your company; area by area. Write us here and we will attend your case.