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Using KPIs

Partners' Network Blog

Key Performance Indicators (KPIs) are a short cut many managers and owners use to measure performance, growth or any metric that provides them with instant information to assess their business or department.

It appears based on some recent articles and blogs that KPIs are being misused. To me, KPIs are metrics that are easy to provide daily in a way that can be reviewed in a few seconds. Anything more involved loses its purpose as a manager’s tool.

With today’s software, amazing numbers can be provided almost on demand, but they are closer to financial statements and usually include involved and complicated tables, charts and graphs. These become dashboards that appear almost in real time on smartphones. However they do not serve the purpose of KPIs.

Most businesses have bookkeepers and controllers, and some have CFOs, who oversee the recording of the data, review the transactions, provide some on the spot audit, and determine if the controls appear to be effective and then arrange the data in a way that helps the users in whatever manner that is needed. However this is not what a manager, on the floor, immersed in on the spot decisions, reviewing personnel, production speed and quality, relieving bottlenecks and dealing with suppliers and upset customers can take the time to read, review and digest and then apply to what they are doing to get through the day. The KPIs provide that support.

Read Other KPI Examples

I usually ask every new client or prospect what numbers they get every day that gives them an update on how things are going. Almost every client gets such numbers. None more than 4 or 5. Some get numbers that I could never have imagined such as the manufacturer where steel is its main raw material who wants the daily amount of pounds received and shipped. Now there is waste and the pounds in and out are not comparable, but the client is an engineer and he developed a conversion formula that instantly gives him the control he needs. Occasionally there are some weird differences but these are accounted for by him quickly since he knows what products are shipped and to what customers.

Another illustration is an internet sales company manager that wants the daily clicks and time on the site. This is also not something in the traditional accounting records.

Irrespective of the daily numbers, many clients now get dashboards or similar reports with very informative data but most tell me they never have the time to really go through them, and even those that do, it is not every day. They glance at one or two numbers but don’t actually use what they get as a management tool. Further, some of the dashboard information doesn’t really help the manager. For instance, daily cash balances or sales with comparisons to last year are great, but do not tell the change from yesterday which could be more important from a management aspect.

KPIs are not meant to replace more thorough financial data especially comparative information, but they are meant to provide quick actionable feedback on a daily basis. If you are not yet using KPIs, I suggest you consider starting.

If you have any questions, I am available for your questions at emendlowitz@withum.com or by filling out the form below.

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