Setting annual goals is important to reach operational efficiency. But goals are only valuable if they’re revisited throughout the year and progress toward them is measured.
In fact, measuring performance against set goals is the only way to know what’s working and what’s not—and to avoid the one thing that leads to death for many organizations: GUESSING.
While measuring performance at the end of the year sounds simple enough, many organizations are not sure what to measure and, therefore, are able to get only a partial picture of the year’s performance. Leadership can see how the organization did generally but cannot tell if it was truly on target in all the ways that they had said mattered at the start of the year.
This is where your organization’s Key Performance Indicators (KPIs) come into play.
KPIs are quantifiable measurements of how your organization is doing compared with its annual goals. Therefore, determining which KPIs are most relevant to your organization at the start of the year can help you see early warning signs of underperformance throughout the year, as well as determine how well your organization really did against its goals when it’s time to take final measurements in the fall.
KPIs can be set for the organization as a whole and also for specific departments—and again, what you choose to measure needs to be tightly aligned with your goals. That said, KPIs also need to reflect what’s happening in the larger business environment. For example, the budget sequestration of 2013 may mean that your organization’s cash flow and cash pipeline will be even more important for business success in the coming year, especially in terms of helping your organization adapt to change. So, even if our country is unable to plan its own budget, it’s incredibly important that our businesses stay proactive and include those KPIs that will help them stay on track during given the current situation.
To get you started, here are just a few of the most common KPIs organizations measure in the big-picture areas of finance and operations:
Financial Key Performance Indicators
- Cost of Goods Ratio: Cost of Goods/Revenue
- Administrative Cost Ratio: Admin Costs/Revenue
- Days Sales Outstanding: AR/Sales per Day
- Days Payables Outstanding: AP/Sales per Day
- Days Working Capital: (AR + Inventory – AP)/Sales per Day
- Productivity Measures (Units/Full Time Equivalent)
- Marketing Cost/Revenue
Operational Efficiency & Key Performance Indicators
- Cost per unit
- Revenue per unit
- Units per Full Time Equivalent
- Cost per Full Time Equivalent
- Customer Satisfaction Rate
- Customer Retention Rate
- Error Rate
No matter what your 2013 performance assessment reveals, the good news is that you’re measuring—and that means you can take action to help you increase success in 2014.
Next time, we’ll share just a few changes that organizations can make in the New Year pending the results of your end-of-year reporting.