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Lag or Lead: Using KPI Analytics to Achieve Results

February 2, 2021
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In the business world, like it or not, we’re outcome oriented. What was the profit margin in the third quarter? Do we need to adjust our revenue projections? Measuring results is the easy part … if everyone is on the same page with the calculation being utilized and affecting those results is another matter. That's where KPI analytics comes in.

KPI Analytics: Shift into Action

This hindsight focus is a necessary aspect of business. We need to set and meet goals. Our shareholders and stakeholders want to know how the company is doing, where it is going. When you were preparing your 2021 budget, individual goals were likely set against these metrics. The challenge is, however, that one individual often doesn’t have a great deal of control over how the business as a whole is doing.I’m not suggesting that we do away with including profitability within bonus or performance calculations. That obviously doesn’t make sense. What does make sense is that we develop a culture of focusing on leading KPIs (Key Performance Indicators) where we measure an individual or team’s actions that have a positive effect on the results achieved by our organizations - and then perform KPI analytics.

Outcome KPIs – Lagging Indicators

Outcome KPIs, the lagging indicators, measure past activity. They’re the output of both our effort and external factors that we can have little or no control over. Measuring our financial performance by our net profit or a project’s return on investment (ROI) and a host of other margins and ratios, help us see where we ended up on a given date or over a period of time.Recognizing where we’re excelling and where we aren’t is a vital part of running our businesses. Whether it’s gauging the results of our marketing efforts by looking at our cost per lead or checking our employee retention rate, these are things we need to know.

Ingredients for Success – Leading Indicators

Forward-looking KPIs, the leading indicators, are the drivers that measure activity that have a significant impact on the outcome KPIs. These are the actions where we need to be focusing more time to ensure that we’re managing our teams in ways that optimize our ability to get to the outcomes we want. They’re action oriented.To complicate things, KPI analytics, particularly leading indicators, often measure non-financial data. They’re a bit harder to get our arms around but it’s still possible. Has the number of unique visitors to your website been increasing in recent months? What is the percentage of directors vs. managers in your organization? Are audits on your systems access performed timely?

Connect the KPI Analytics Dots

It’s incredibly easy for us to go overboard with tracking metrics, so selectivity is needed. Is tracking a specific KPI important to measure efficiency or safety or to increase awareness? Or is it merely interesting? It’s a slippery slope but that’s where judgment comes in. If we’re tracking referrals and re-double our efforts to increase them, the competitive edge we gain can set us apart from our competitors.As financial professionals, we’re becoming more engaged in strategic planning and decision making. Finding time for everything is challenging but automating transactions and adopting tools to more accurately budget and plan company activities and expectations can aid us in getting there. Focusing more on the analysis and the management-side of achieving our business objectives is a great way to grow and positively impact your organization’s bottom line.

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