July 29, 2015
As legendary business author Peter Drucker once said, "What's measured improves." If you've been in business any length of time, you know that creating meaningful measurements that tell you how your business is doing (a.k.a. Key Performance Indicators or KPIs) can be challenging. The good news is, you only need a few KPIs to really get a handle on the financial pulse of your business.
Rick Smith, Director of Business Analysis and Process Improvement at Yale University says the best place to start is by clarifying what should be included in the "critical few" measurements that business owners focus on. He suggests using a problem-solving perspective and asking three key questions:
While this approach is simple, it does require you to dig deep and ask probing questions in order for it to be effective.
Smith also says that it's important to differentiate between KPIs and metrics. A KPI equals a metric, but a metric does not equal a KPI. A metric is simply a data point such as 300 calls per day. That doesn't tell you if it's good or bad. A KPI includes two points to measure: 1) where you are and 2) where you should be as defined by your business objectives, service level agreements, or company specifications.
Smith also points out that businesses often create both operational and customer experience metrics, and they can get out of sync. Operational metrics show everything is working fine, but the customer experience metrics tell a different story. This is usually caused by not measuring the right things or not measuring correctly. To counteract this problem, Smith developed an indicator called the FVI (FACE Value Index). A high FVI is a good indicator that your business practices are in harmony with established KPIs.
The FACE components include:
F = Fast (i.e. Are you being efficient?)
A = Accurate (i.e. What is your error ratio?)
C = Cost Effective (i.e. Are you meeting profitability goals?)
E = Easy (i.e. Can you maintain the process without excessive effort or resources?)
By using Smith's two-part process for establishing and measuring KPIs you can more easily determine metrics for your business processes, beginning with the three key questions above to narrow down the "critical few." Then use the FACE components to establish your metrics. Two to three metrics in each major area of your business to determine how you are doing should be sufficient.
Our financial experts have a wealth of experience in helping business owners measure and improve their KPIs. Please contact us if we can be of assistance in this regard.
BOSS is the answer to your back office headaches. Our cloud-based solution enables you to hand complex accounting tasks over to us. We work the numbers while providing you 24/7 access to your data—and all at a fixed, affordable monthly fee.
Chris Ayers has been a part of the Greene Finney, LLP team since May of 2017. As part of our Advanced Staff, Chris is responsible for performing audits for clients. His formal education includes a BS in Accounting and a BA in Criminal Justice, both from Anderson University in South Carolina. Chris enjoys an active lifestyle outside of the office, which involves activites such as hunting, playing golf and spending time with his Golden Retriever, Sammy.
Having a remote workforce can be challenging, especially if you are trying to build a positive, collaborative work environment. So, how do you create a sense of comradery when you have staff in remote locations? These tips can help:
If you are expecting a refund this year, you may be tempted to splurge on something not-so-practical. Before you do, take some time to think about ways to use your refund to bolster your financial health. We’ve put together a few ideas for you to consider: