Running a business is a complex thing. You need to keep an eye on all the key components: GP for key products, sales trends, expected cash crunches. Even if you aren’t in a traditional sales business you will almost certainly have metrics you care about. In the healthcare area, it may be Bed occupancy or infection rates. In construction, it may be time and cost overruns.
What is a KPI?
Whatever your industry, and whatever your role, modern business runs on numbers. In Business Intelligence, we call these key business measures Key Performance Indicators or KPIs. KPIs can be anything, but must be agreed indicators of business performance. They must also be measurable.
Example of a KPI:
If you have a very image sensitive business, one of your performance indicators might be how well you are perceived by the public. To use this you would want to know if your business has an improving reputation or decreasing one. So you need to measure it. This is a key component of KPIs.
In business intelligence all we really need to do is expose these KPIs. Sometimes people mix up KPIs with charts of performance. While these are related, a KPI is a single measure of performance with agreed upon values of good or bad.
How to implement a sales based KPI?
There are a few ways that you can use sales info for KPIs. The truth is that you almost certainly do this already. Using KPIs is just a formalisation of the process.
Some Sales based KPIs:
- Sales for any period against a fixed amount
- Sales vs budget
- Sales trend over last six months (Linear regression)
What is an HKPI?
Of course these could be then broken down by product groups, or branches.If you do that then you create what we call Hierarchical KPIs, or HKPIs.These are defined for each branch or product group and the parent level KPI is based on the result of the child KPIs.Think of it like a master warning light.The top level tells you something isn’t ok at a lower level.
Example of a HKPI:
A retail business has stores across the country.Responsibility is broken up by store managers, regional managers, state level BDMs and then the national sales manager.Each store has a Sales vs Budget KPI.If any store in a region has a sales vs budget KPI that is red, then the regional KPI is red. Similarly, if any region within the state has a red KPI then the state has a red KPI.
In a flat KPI system, the regional KPI is just based on the aggregated numbers.So, if you had three stores doing well and one doing poorly, in a flat KPI system, the region may still have a green KPI, but in HKPI, the region KPI would be red.
KPIs in Practice
Of course one thing to remember is that KPIs do not and should not give you any numbers or details. The KPI is simply to draw attention to the area of the business; to indicate that something is wrong.
For convenience, when setting up BI systems, we often combine the user interface with some actual numbers. The KPI is shown using colour, but we can supplement that with numbers to help give some basic understanding of the cause for the current indication. Here are some variations of the way that KPIs can be shown:
KPI Visualisation – Sales vs Budget
Radial Gauge – Sales vs Budget
Linear Gauge – Sales vs Budget
Implementing effective KPIs could be fundamental toward monitoring your business successfully and achieving your organisational aims. To chat with a member of the Endeavour Team about how best to do this for your organisation please call 1300 583 097 or alternatively email us.