It's extremely important to measure progress in your small business. There are so many ways…
How Often Do You Check Your 300 KPI’s?
Yes, I’m joking. Nobody would have 300 Key Performance Indicators – would they? A week ago I didn’t think this was possible, but an article I read during the week made me change my mind.
The article was written by Stacey Barr. Stacey calls herself the “Performance Measure Specialist”, and having undertaken her training; I can confirm that the title is indeed appropriate. Stacey specialises in helping companies to set Key Performance Indicators that really give an accurate picture of how the business is going.
Stacey recounted the story of a transport business that was measuring over 300 KPIs. Yes, you read that correctly. And according to the article, compiling all this data was costing the business $480,000 per year. Here are a few other statistics from this KPI horror story:
- Many of these 300+ KPIs were repeats, only using slightly different definitions of the same measure.
- Almost 50 reports were created each month to review these KPIs.
- All this effort was taking up some 1,200 hours each month (which could have been spent with productive work).
To quote Stacey’s article;
“Martin was spending about half a million dollars a year on information he didn’t trust and couldn’t use”.
My immediate reaction was that this business owner was recklessly using the acronym “KPI”. The first word stands for “Key”, and the business owner had somehow bypassed its meaning. “Key” means “of crucial importance”. (Oxford Dictionary). According to this business owner, there were over 300 metrics that were of “crucial” importance to his business.
I had a quick online discussion with Stacey about the post, and she agreed that many seem to have forgotten the meaning of the K in KPI. She believes that there is a “massive tide of using ‘KPI’ to mean ‘measure’…”.
‘Key Performance Indicator’ ≠ ‘Measure’
In other words, you may measure many things in your business, but you should only have a limited number of Key Performance Indicators. These are the things that really matter to your business, and are directly linked to your business objectives. Changes in these indicators signal either really good news or really bad news for your company. These are the things that you must pay attention to in order to keep the ship that is your company steering true towards its destination. To take the sailing analogy a little further, it may be somebody’s responsibility to measure (count) the amount of red wine on board, but it’s not a KPI. The ship can still sail without red wine, but the amount of diesel on board really is “Key”.
Setting appropriate KPIs is an enormous topic – far too much for a single post. So, I will follow up on this article with some insights that I have gained over my years of both operating and assisting small businesses. In the meantime, it would be a useful exercise for you to examine the KPI’s you are using in your own business.
Your company’s “Key” indicators will be unique to your business, will be tied to your business objectives, and really will be Key. Copying some “KPIs” from an internet site and adopting them wholeheartedly will not help you to manage your business. In fact, like Stacey’s client Martin, you will most probably be wasting a considerable amount of time and money producing irrelevant data.
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