1. Focus on the areas which affect profitability and cashflow: sales, costs and working capital.
2. Identify the key drivers which significantly affect performance; these might include factors which have a major influence on quality, customer satisfaction and costs.
3. Monitor indicators which reflect your strategic goals. If you aim to expand your customer base, track new-enquiry levels.
4. Look for indicators which are measurable, such as number of complaints - rather than qualitative assessments such as ‘customer satisfaction’.
5. Aim for direct indicators, but use indirect ones if necessary: for example absenteeism as an indicator of employee motivation.
6. Look for indicators which can be targeted either by comparison with historical performance or by benchmarking them against other companies.
7. Consider indicators which demonstrate efficiency. Monitor defect ratios, levels of production wastage, the conversion rate of new enquiries into sales, or delivery time.
8. Focus on a small number of key indicators to monitor at board level; leave more detailed, subsidiary indicators to individual managers to monitor.
9. Identify any external drivers - such as foreign exchange rates - which need monitoring but are beyond your control.
10. Decide how frequently to monitor each indicator. Some figures - such as premises’ costs - might only be reviewed annually, while sales progress, cashflow and credit control should be reviewed weekly or even daily.
11. Present the information in a way that demonstrates the trends and highlights the significant variations - using graphs or charts can be particularly effective.
12. Dig deeper into areas where performance levels have deteriorated (or improved) unexpectedly; identify the reasons behind the change.
13. Take action.
Do's & Don'ts
Do:
Understand the key drivers of success for your business.
Ensure indicators are measurable.
Set targets.
Investigate unexpected performance.
Use performance indicators to drive improvements.
Don’t:
Try to monitor too many indicators.
Ignore important activities because they are difficult to measure.
Monitor unimportant indicators just because they are easy to measure.
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