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. Affecting those results is another matter.
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 is it going. When preparing your 2017 budget, individual goals were likely set against these metrics. The challenge with that is that one individual often doesn’t have a great deal of control over the how the business as a whole is doing the market place.
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.
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 complicating 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 female managers in your organization? Are audits on your systems access been performed timely?
Connect the KPI Analytics Dots
It’s incredibly easy for us to overdo it 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 were 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.
If you haven’t already done so, take a look at the article I wrote for Financial Executive International’s Annual Magazine, “Using Cube Structures to Move Budgeting to the Next Level”. It talks about scenario planning and how we need to universally shift our focus from lagging KPIs to leading KPIs in order to significantly impact our businesses.
Businesses of every description rely on the Budget Maestro™ family of software solutions by Centage Corporation to improve the efficiency and effectiveness of their business budgeting and planning, financial forecasting, financial consolidation and reporting processes. For more information, take a tour of Budget Maestro, contact Centage, or call 800-366-5111 now.