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Business Fitness Assessment Using KPIs
By Enabliser Steve
We use KPIs to tell us you how we are performing against plans. They provide indicators on where we need to improve, and where we are tracking well - assessing profitability, efficiency and financial stability – how fit we are for the marathon of business life. A recent study in the USA by Forbes found that 61% of businesses made decisions without the full facts. Just as our doctor takes blood pressure and other tests to make a diagnosis, is it good enough for us to use experience and best guesses? The hard facts are available. We can calculate KPIs on a notepad or spreadsheet, or use our accounting / ERP system to do the work of reporting, and Business Intelligence (BI) tools such as Orchid Info-Explorer for analysis. They can report this information automatically. It gives us time to focus on strategy instead of number crunching.
This blog we hope encourages you review both the KPIs you use, and how you calculate them. There are historical measures such as margin, liquidity and ROI. Longer term financial KPIs would include the current ratio (short-term assets/liabilities) – remembering the recent case of a large public property company that discovered it had short term debt not covered by equivalent assets – management at the time no longer work there. Looking forward and tracking growth and trends, KPIs normally include sales and customer service measures. Depending on your business you may measure inventory turns or sales pipeline and there is receivables days, downtime and productivity, and inventory to sales ratios. These are simple to report on and a good ERP and Business Intelligence analysis system will provide them.
What are our customers’ most popular KPIs? They include performance against budget and previous year, COGS (cost of goods sold), average sale value, average collection and payments periods, inventory to sales ratio, sales per employee or sq. m, debt to assets, times interest earned. You probably use them too.
None of this information is rocket science. It is worth re-examining our KPIs periodically. Could we be performing better and getting our ERP system to provide the reports? What factors drive or constrain our business that we are overlooking, taken for granted? Consider benchmarking with like organisations. Maybe we are over-reacting to a poor KPI and it is a short term fluctuation, or maybe we need to evaluate why this is going wrong and develop a recovery strategy. Based on hard facts.
Good ERP and BI systems allow you to automate when they run, so our KPI Reports land in our In box or user dashboard. Our KPIs might be dashboard graphs showing how we are tracking against budget. It may be a more detailed report with an overview and can also drill down into the underlying data. Many companies benefit from self-service analysis where you have a block of data-information, and can recast what you show, how you view it, adding and removing elements (dimensions) by dragging the mouse – rather than setting up more and more reports or manipulating complex spreadsheets. It takes pivot tables a stage further. This need not be expensive and can pay for itself with one hidden problem isolated.
Your Enabling Consultant can assist you in revamping your reporting or obtaining more insights from the masses of data you have. You may be surprised at the difference.