Which KPIs Should you Measure?
So you’ve made the important decision to develop KPIs to measure and proactively manage your business. Congratulations! But that begs the question: Just what the heck should you measure? This is an essential topic that, in case you hadn’t noticed, we’ve been building up to all along. In this article, we’re going to shine some useful light on the subject of how to select the right KPIs.
Where to Start?
As we’d mentioned in our article about the different types of KPIs, some KPIs are consistent across lots of industries, while others vary widely from industry to industry, and even from company to company within the same industry. It depends on numerous factors, with “strategic goals” being prominent among them.
So how do you choose? Sure, in our “How to Use KPIs to Improve Operations” article, we’ll hammer (“beaten to death”?) the point that effective KPIs must align with your firm’s stated objectives. That’s nice. But now that you know that (have we told you recently how smart you are?), we can finally avail you to a simple four-step process for choosing KPIs and ensuring their alignment with behavior and actions your company wants to reinforce.
Choosing the Right KPIs – A Step-by-Step Approach
Step 1: Refine your Focus
All too often, we see companies that try to develop as many KPIs as they can, as quickly as they can. You guessed right: This quickly degrades into chaos. If you don’t have a clear methodology for prioritizing the groups or processes that would benefit from the application of KPIs, you won’t get actionable information. To the contrary: you’ll just mire yourself in numbers.
How, then, do you perform this essential triage? Start by determining which departments will be monitored by KPIs. Begin with the work groups that are closest to the product or service you’re delivering to the customer. And think big. Don’t impose KPIs on groups that consist of just one or two people. Go for the broader perspective. Begin with the larger, customer-impacting departments.
Step 2: Choose KPIs & Metrics that Matter
An effective KPI must be chosen to fit the organization. Specific business goals should be clearly defined to all cross-functional teams, to help them understand just what business processes should be measured.
Let’s say you’re working in an insurance company. Sure, your goal may be to process the most possible applications. But “Applications Processed Per Month” isn’t a terribly revealing KPI, all by itself. Consider others which provide up- and down-stream impact, based upon intra- and inter-departmental performance, such as:
- Average application cycle time
- Percentage of applications requiring rework
- Applications processed per employee (per hour, day, week, etc.)
- Application conversion rate
See how these metrics provide information that you can act upon? (“Wow, I can see that our applications-processed-per-employee-per-hour is lower this month than it was last year. Does that new crop of employees need remedial training?”)
You have to think to come up with these important combinations of metrics. (Fortunately, OpsDog offers you scads of samples, and you can easily drill down by industry, too.)
Step 3: Outline KPI Data Collection Methods
KPIs require data. In a word, Duh. But ensuring that the data you collect is accurate, accessible, and unbiased is anything but a no-brainer.
Huddle with your cross-functional working group. And for each KPI you plan to employ, determine:
- Does the data we need exist?
- Where will the data come from?
- Who is responsible for pulling the data that’s needed?
- Who will regularly audit the data for accuracy?
- Who will maintain the reports and distribute them regularly?
Once you’ve got a clear consensus for your data-collection protocols, you can…
Step 4: Build Clear and Robust KPI Reports
We’ll talk about Management Operating Reports (MORs) in our “How to Use KPIs to Improve Your Operations” article? Here’s where they take the stage. While creating reports is a normal part of any business, keep these goals in mind as you work with your KPIs and the information they feed you:
- Be upfront. The goal of the report should be self-evident from the get-go. Make it clear to any outside reader. Don’t assume that they know what you were trying to uncover.
- Different audience, different information. Reports for executives are not the same as those for managers or front-line staff. Each group has different preferences in terms of the metrics they need to see, and the level of detail they want to explore. Be sensitive to these needs.
- Say something. You might think that a PowerPoint full of numbers looks impressive, but the fact is that it’s pretty much useless unless it makes a point. Is a certain metric—and remember that KPI stands for “key performance indicator”—trending in the right direction? Is a weakness being exposed? What’s the timeframe for corrective action? Answer questions like those, and you’ve got a report that’s a winner.
Selecting the right KPIs is at least as important as making the decision to use KPIs at all. But now that you’ve got the way to do it—in terms of defining the scope, selecting relevant metrics, getting the right data, and building concise reports—you’re armed to promote progress, performance, and profitability. And you’re welcome, too! We love the fact that you’re even smarter than you were five minutes ago.
Next up: A deeper dive on using KPI reporting and performance management to improve operations. Read it now.
And don’t forget: OpsDog offers a treasure trove of KPIs and templates for you to download and put to business-building use. Go for it! Be a hero.