How to determine and measure Key Performance Indicators – Paweł Prymakowski
CEOHow to determine and measure Key Performance Indicators (KPIs) in companies from the SME sector
Very often, owners and managers of small and medium-sized enterprises believe that defining key performance indicators is the domain of large enterprises and corporations. It’s true that determining and measuring performance with the right indicators is essential in large organizations to define whether a business is going in the right or wrong direction. It is a typical managerial control tool used to evaluate current activities in order to implement the strategy. Are you sure that measuring these indicators should only be the domain of large companies?
Until now, it was believed that in smaller organizations it was easier to notice any changes and quickly implement a recovery plan. However, the current business environment, growing competition and dynamically changing market situation, in a way, force small and medium-sized enterprises to use special tools for assessing effectiveness. Each organization should be focused on building a results-oriented organizational culture.
Where to start?
Certainly, from a clearly defined development strategy and considering what can distinguish us from the competition. Then, in all areas of our activity, the indicators of interest to us must be defined. We should not limit ourselves to only financial indicators. Properly selected measures will also help in operational management, in human resource management, and in assessing the quality of customer service. However, remember that more is not better. Let’s choose indicators that have a real impact on our company and its results. It is enough to measure 20 indicators (although more and more consultants suggest that there should be around 10 of them).
How to select Key Performance Indicators?
You should choose only those indicators that are measurable over a specific period of time and those on which employees have a real influence. KPIs are to shape employees’ responsibility for the company’s performance. Therefore, one should also consider how to reward for achieving the expected goals. Another point to think about is giving eligible people access to your current results.
When selecting ingredients, it is worth remembering that they should be up-to-date, supervised by the management board, simple (each employee should know how to achieve a given result and what affects it), based on teams in the company, significant (having a direct impact on the company’s condition), clear (defined in such a way as to limit the possibility of their control).
What Key Performance Indicators shoud be measured?
In addition to typically financial indicators (e.g. sales margin, net profit, sales value per employee, return on investment), we should also remember about indicators that affect the perception of the company by its customers, suppliers or employees themselves.
An example of such indicators may be:
- the ratio of defective products to the total number of products produced
- performance per 1 employee
- order fulfillment time
- time from the occurrence of the defect to its repair
- employee’s rotation
- customers and employee’s satisfaction
- the number of complaints in relation to the number of products sold
- percentage of late or incomplete deliveries.
These are, of course, only examples, and the team defining indicators should verify the proposed KPIs against the company’s strategy and competitive situation.
Be sure to follow the progress!
Because measuring indicators requires ongoing monitoring of progress (practically 24h / 7) and comparing actual results with specified goals, each organization implementing this type of control tool needs an appropriate IT solution. A separate topic is whether it will be a simple Excel workbook, multidimensional analyzes or a module of the Business Intelligence class. The most important issue in addition to setting goals and indicators is to define the next steps to monitor the process. Only in this way is a smaller company able to implement management by objectives and ensure early warning of changes taking place. Thanks to this, it will be able to react quickly and flexibly. What’s more, such a company will increase its chance of success in the era of constantly changing business reality.
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