Failing to develop Key Performance Indicators (KPIs) that are aligned to your business’s vision can create confusion over your organisation’s priorities, lead to an ineffective use of resources and impact on staff engagement. Whereas, dedicating time and energy into creating strategically focused KPIs can propel your business forward.
Having worked with a number of boards and leaders across a wide range of industries to develop key measures that monitor performance on projects and business as usual (BAU) activities, I’ve seen many attempts to develop KPIs just for the sake of it. Meaningful KPIs are a critical component of a well-designed business strategy as they influence your success. Your KPIs should cascade from the organisational level down to the business unit, team and individual level, as this focuses effort and drives the right behaviours that work towards achieving or exceeding your targets.
So what exactly is a meaningful KPI?
Whether you’re a leader developing KPIs for your staff, or you’re a member of a project advisory board for a multi-million dollar infrastructure project, the same fundamental principles apply when developing KPIs. Meaningful KPIs are designed with the underlying behaviour they are trying to drive in mind. I would recommend you consider the following when developing your KPIs:
Tip 1: Do the proposed measures flow down from the overarching organisational level through to the business unit, team and individual level?
Tip 2: Are my KPIs balanced? Do they complement each other? Or do they promote conflicting behaviours?
Tip 3: Are our KPIs objective, specific and measurable? You don’t want to be spending hours upon hours trying gathering data that doesn’t help you improve your performance.
So what does this look like in practice?
KPI Example: Cash flow is an important measure for any business. At BRS we have developed a range of measures within our Balanced Scorecard to focus our team and assess the health of our business – one of these measures is our payment Days Sales Outstanding (DSO). The DSO indicates the average number of days it takes BRS to receive payment from our clients from the date of invoice. Our target for DSO is less than 21 days.
This measure drives several behaviours across our team – firstly it encourages our Consultants to proactively negotiate our preferred payment terms of 7 days, be clear and upfront with expectations, and tighten our qualifiers and assumptions when bidding for work. It also prompts our accounts receivable staff to follow up unpaid invoices and highlights to our team the need for a more aggressive business development strategy to help inject cash into the business.
Getting your KPIs right can improve your business performance by driving behaviours that directly contribute to achieving your targets. Well-designed KPIs can also improve staff focus, accountability and role clarity by clearly articulating your business’s priorities and assigning responsibility for the business’s performance against these key measures.
If you have been reviewing your organisation’s KPIs recently we would love to hear from you. Please comment below with your thoughts, tips and questions on what makes a meaningful KPI.
Developing or reviewing your strategy? Contact us to talk through how we can help you design meaningful KPIs that drive high performance within your organisation or projects.