Let me ask you a few questions about the performance of your organization so far this year.
- Is it Performing To Your Expectations?
- Do You Know Where You Are (after 4 months of the year)?
- Are You Making Progress Toward Your Objectives?
If you can’t answer these questions quickly, without having to read a bunch of reports, then I’m willing to bet that you really don’t know how your organization is really performing, and if you’re on course.
As we’ve noted in the past, successful organizations have a formal business plan, and a budget to achieve that plan. The business plan provides the overall direction and key objectives for the organization, and their budget is the chart to help plot the course, identify the current position, and measure progress toward the objectives.
There is, however, a third component that all organizations should have in place to quickly evaluate their performance – a set of Key Performance Indicators, or KPI’s. KPI’s are specific, quantifiable targets to measure the critical factors that are essential to the organization reaching its objectives, and can provide information about its performance in those key areas. Every organization will have their own individual set of KPI’s to measure their performance and progress, and identify actions required to improve that performance over time.
In order to set effective KPI’s, an organization must establish its objectives in the business plan and related budget, and then choose those KPIs that best reflect the objectives that are essential to the organization’s success, and can be measured. Think of them as a dashboard that will tell you the performance in key areas of the organization at a glance.
Generally, most organizations will have up to five primary KPI’s, although each department may have a separate set of KPI’s that support to overall organization objectives. More than five will dilute the organization’s focus, and be distracting vs. helpful. In addition, most KPI’s are usually are long-term, so the definition of what they are, and how they are measured, should not change often, unless the organization’s objectives change, or it gets closer to achieving a particular objective.
Effective Key Performance Indicators will:
- Reflect The Objectives of the Organization
- Be Specific Factors That Are Critical to the Organization’s Success
- Be Measurable, and Include Specific Performance Targets
Once you have the set of Key Performance Indicators that define your organization’s goals, and can be measured, use them as a performance management tool. Effective KPIs will give your entire organization a clear picture of what is important, what actions are required, and insure that all activities are focused on meeting or exceeding them.
While it may be possible to manage without a plan, budget, and KPI’s in the short-term, I can guarantee that your organization will survive, and be much more successful, with all of these elements in place.
If you would like to discuss your organization’s particular issues, please give us a call at (727) 637-4666, or email me directly at Don@HuttlinAssociates.com.
“It is an immutable law in business that words are words, explanations are explanations, promises are promises but only performance is reality.” – Harold S Geneen
“Manage your destiny, or someone else will.” – Jack Welch
“What’s measured improves.” – Peter F. Drucker
“If you don’t drive your business, you will be driven out of business.” – B. C. Forbes
- Less Is More … Or Is It? | Executive Reporting | Domo | Blog (domo.com)
- KPI: What Is a Key Performance Indicator? (mashable.com)
- Choosing Indicators: Separating KPIs from KRIs (catbirdanalytics.wordpress.com)
- Options For Creating Business Strategy Plans (demandmetric.com)
- Five Numbers Small Business Owners Should Know (hiscoxusa.com)