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In today’s technology driven world getting management reports with a suite of Key Performance Indicators (KPI’s) is common place. This information is certainly valuable and can tell a business owner a story but really what is the impact of it on business.
One of the criticisms of a profit and loss statement was that it was too much information and was hard to read to non-accountants. I believe the same is true for these KPI reports that span several pages. To be clear I am not suggesting that these KPI’s shouldn’t be looked at but I don’t believe they should be looked at with such regularity.
Personally I believe one of the smartest things in business is to keep it simple. If you are trying to monitor 30 KPI’s you probably aren’t doing a great job on actually being on top of them. It is simply too much information. Again these individual KPI’s are important but should be looked at by managers of that area regularly and at a top board / management level quarterly.
Therefore I pose the question – If you could only see two or at maximum three KPI’s each week or month what ones would show you the health of the business and give you certainty that the business was travelling well. This is not an easy question, some business owners would answer “I only need one net profit percentage.” Sure that tells you if the business is making a profit but that does not tell you if cash is available. It is common knowledge that cash flow is the number one killer of business, but of the businesses that failed due to cash flow 70% were actually profitable. In our business the two current indicators are average hourly rate of all team (including admin) and debtor days. Average hourly rate tells me if the company is making a profit as I know the hourly cost that goes into the business and therefore I need an hourly rate of all team members i.e. Revenue billed / all staff hours. Debtor days is a little more self-explanatory in that it shows the average time it takes you to be paid from your customers. The third one is making sure the work is going to be there in the future being opportunities identified in terms of dollars.
We can with a click of a few buttons get two pages of KPI’s. If I was getting this sent to me each week I wouldn’t be able to focus on the key areas. These become invaluable when the indicator is not going in the right direction and further investigation is then required to work out why. These other KPI’s give you the ability to be able to quickly identify potential issues.
Owner’s time is precious and therefore going through a myriad of key performance indicators regularly is information overload. At the end of the day if they indicators are going well then there is no need to drill down into a lot of detail each week. What is key is identifying the key 2 or 3 KPI’s that will give the owner satisfaction that the business is going well. We can certainly assist clients identify these indicators and develop a monitoring system so you can have comfort in your business’s performance quickly.
