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KPI

KPIs as Strategy and Alignment

December 30, 2020 by Dustin

There is a normal way to use Key Performance Indicators, and a way to get a bit more “juice” out of the process. The “juicier” way brings KPIs into the strategic planning and alignment process. Let’s take a quick look at both.

KPIs, the Normal Way

Metrics combine two or more measures to provide context and more information.

If you’ve been through my other posts on implementing KPIs, you know that at their heart, KPIs are simply measures or metrics. Done well, they focus not only on outcomes, but also on the actions that lead to positive outcomes.

In this way, KPIs are the most critical and vital data points about the business. Indeed, part of the best value KPIs provide is that they clarify so much information about the business in so little time. But left as data points, they are just that… just data points.

KPIs as Alignment

KPIs create alignment between employees and what matters most to the business.

There is one critical function KPIs provide on their own as simple data points: focus and alignment. By identifying the most critical data points about the company, everyone is automatically clear about what matters, how it’s measured, and where to focus effort.

Perhaps it’s just my experience, but the last time I purchased a vehicle, it was very clear what my sales associate was focused on. You may be thinking, of course, his focus was “making the sale.” But it wasn’t. I don’t know whether it was just this particular brand or this particular dealership, but someone finally realized a truism: If I’m present in a car dealership, chances are great that I want to buy a car, so stop worrying about trying to sell a car, and start focusing on discovering and addressing my actual concerns.

The sales associate took pains to uncover my real concern: the model I wanted wasn’t going to be in stock before my lease ran out. He arranged a loaner, at no cost to me, for whatever duration until the model arrived, if I’d agree to the sale.

Fast-forward three weeks of free vehicle rental later, my sales agent didn’t need to remind me of what I already knew. Following the sale, I would receive a survey from the automaker about the level of service I had received from the dealer, and high marks are critical. How do you suppose I scored my dealer experience?

Good KPIs align attention, behavior – everything – toward what is important.

KPIs as Strategy

Introducing goals to KPIs make them a powerful part of the strategic planning toolset.

But we can take KPIs further and use them as tools in the strategic planning and execution process simply by adding goals. I want to be careful here to draw a distinction.

In my method here at Pivot Habit, if you use my worksheet and what I outline about creating a Performance Budget, you will in fact create monthly “Plan” numbers for every month of your planning period, and for every KPI. By default, this is nothing more than “forecasting.” That’s not the same as strategic planning or goal setting. Let’s draw the distinction.

A forecast is simply a prediction of the future trend given current conditions and effort. For example, if last year you did revenue of $10M and you’ve been growing at about 10% per year, you might forecast revenue of $11M this year and break out monthly plan numbers that show that. That’s your forecast.

Strategy and goals come into play if you’ve got something new up your sleeve this year that means that $11M forecast doesn’t cut it. For example, maybe your strategy for the new year is to introduce a new product line. Your research shows strong early demand, and you’ve set a goal for $1M of new revenue for the first year.

You might choose to represent this revenue as it’s own “New Revenue” KPI, wrap it in to overall revenue and map out $12M in revenue for the year, or some other way. The point is now you’re not just forecasting against current conditions. You’re adding in goal setting which is all about changing conditions for an improved result.

Back to Index | Next: KPI Cadence and Time Frame

Download the KPI Planning and Tracking Worksheet

Save hours of work by starting with a pre-made Excel Workbook featuring examples, explanations, and built-in calculations.

Download the KPI Workbook

 

How KPIs fill the gap to provide strategy and alignment for management teams.
How KPIs fill the gap to provide strategy and alignment for management teams.

Filed Under: KPI Tagged With: alignment, strategy

KPI Pitfalls and Mistakes

December 30, 2020 by Dustin

While setting up Key Performance Indicators isn’t usually a high difficulty project, it’s also not difficult to make mistakes and trip into common pitfalls. Let’s examine some of the most common so you can avoid them.

  1. Going BIG too early
    One KPI mistake is creating too many KPIs too quickly.Occasionally, I’ll see a client define a really solid set of KPIs. No, really – a really solid set where all the KPIs are spot on, everything matters, there’s nothing missing. Everything is exactly right.

    There’s just way too much to get started with.

    For a small-to-medium business new to managing with KPIs, it can be overwhelming to go from no KPIs to all the sudden having a dozen or more (many more sometimes) per department, rolling up to central management. Sometimes it’s best to pace yourself and introduce KPIs over time.
  2. Creating too many KPIs
    Too many KPIs, even good ones, can be overwhelming.As opposed to the previous answer, it’s also easy to just go overboard and over do it when implementing KPIs. It’s easy to want to measure everything under the sun. You can convince yourself that you really do need every single measure and metric. But the question is do you really? For most of the clients I work with I provide the gentle reminder that they’ve been working “okay” this long without KPIs, and true, while using KPIs will greatly accelerate performance, it doesn’t follow that they absolutely without a doubt have to have every KPI under the sun.

  3. KPIs that don’t matter
    A big cause of too many KPIs is selecting data points that just don't matter.One of the biggest reasons for too many KPIs is adding in measures or metrics that quite simply just don’t matter. For each KPI, it’s important to ask two questions:
    1. How long is it going to take to gather and present this data point, and is it worth that effort?

      Occasionally, some data points are interesting but just not worth the effort.
    2. What action will I take based on changes in this data?

      If you’re not going to make any changes or take any action, do you really need the information? Usually, the answer is no. Sometimes, the answer is there is a different KPI that already answers the question from another angle. Re-think your data point and your question.

  4. Missing critical KPIs
    Failing to create critical KPIs means missing a critical opportunity to improve your business.This point and the next are related. Your first pass at establishing KPIs will not be your last. Based on my experience, the likelihood is high that you will forget at least one KPI that, as it turns out, is extremely important to the business. Sadly, we’re human and it happens. Let it happen. Get started with what you have and review to add what is critical yet missing.

  5. Waiting for perfection
    Don't wait for KPI perfection. Get moving and adjust later.It is very common that a few KPIs you really want turn out to be challenging to collect for some reason. Great – get started without them. Do not wait. Mark my words, if you are told the data will be available in two weeks, two months will elapse. Do not wait. Get started with what you have and tune/add/substract KPIs later. Perfection is the enemy (said to you by an ever-recovering perfectionist).

  6. Failing to set a Plan for your numbers
    Creating performance plans for your KPIs is a key step in maximizing the effectiveness of your KPI implementation.Create Plan numbers for your KPIs. For every month. Make it so that you have planned performance that you can review every month in order to checkpoint performance.

    Note that technically I’m not saying “set goals” – I’m merely saying set your plan numbers. Remember that you don’t have to set an improvement goal for every KPI. But it’s a great practice (a best practice, even) to have a plan and check performance on a formal cadence.

  7. Failing to review performance against KPIs
    Be sure to formally review performance against KPIs.If you do not establish a formal monthly review ritual and periodically informally review performance, don’t even bother setting up the KPIs. You’re wasting your time.


    Back to Index

Download the KPI Planning and Tracking Worksheet

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Download the KPI Workbook

 

The top seven pitfalls and mistakes to avoid when using KPIs.
The top seven pitfalls and mistakes to avoid when using KPIs.

Filed Under: KPI Tagged With: mistakes

KPI Cadence and Time Frame

December 30, 2020 by Dustin

If you happen to hit this article first without going through my other articles on KPIs, the idea of KPI cadence might make sense. But chances are KPI time frame might not register.

Let’s take these two elements of time and KPIs and work out the kinks.

KPIs Have a Cadence

Key Performance Indicators have a natural cadence to them. Actually, in my book, there’s a formal cadence and an informal cadence.

Formal Cadence

KPIs need to have a formal cadence for maximum success.

When I coach clients, we absolutely establish a formal cadence of KPI review, monthly. That is, we have an established ritual every month wherein we review KPIs against plan for actual performance, calculate variance, celebrate success, and apply any corrective action needed for any short falls. This process is absolutely critical to transforming KPIs from a “make work” exercise to a critical piece of managing the business and transforming performance.

The reason this is a “formal” cadence is because:

  1. This is a planned ritual, calendared for all involved, and sacrosanct: It must happen without fail.
  2. It is recorded for posterity, becomes part of the company record, and is referred to as a historical record. It is “official.”

That is not to say we don’t look at performance more frequently. We absolutely do. That’s where the informal cadence comes in.

Informal Cadence

KPIs have an informal cadence of review in addition to a formal cadence.

Some teams and businesses look at KPIs as frequently as daily. Sales organizations are a great example. Software development teams are another. Still other teams may review KPIs weekly, bi-weekly, etc.

These reviews are very important and can be critical to running the business. Some may even become Formal in their own right. Most, though, are not. Most are simple checkpoints to check progress along the way.

They key difference is what’s done with the information.

Download the KPI Planning and Tracking Worksheet

Save hours of work by starting with a pre-made Excel Workbook featuring examples, explanations, and built-in calculations.

Download the KPI Workbook

 

When Used as Strategy, KPIs Need a Time Frame

KPIs used for strategic planning also have a time frame.

Remember, left on their own, KPIs are just data points. They just provide information about performance and outcomes.

You can bring KPIs into your strategic planning process by giving them a goal.

Anytime you’re going goal setting, that’s where having a time frame comes in (remember the “T” in SMART stands for “time-bound”). So let’s get specific about what makes for a good time frame with KPIs.

Here at Pivot Habit, I coach my clients to:

  1. Forge a 10-year vision.
  2. Look ahead 3 years.
  3. Build a clear 1-year plan.
  4. Calibrate quarterly.
  5. "Plan to Pivot" monthly, making small course corrections to maintain strong control over performance.

Coming back to KPIs, the question of which KPIs we measure and how should seldom change. The slate should be stable, changing only by need.

The real issue of time frame comes to goal setting for KPIs we’re using in strategic planning. My advice is the same as with all other strategic planning time lines: Aim for most goals to fit ideally within one or two quarters, and none longer than a year. This aligns nicely with your planning and review cycle.

Back to Index | Next: KPI Pitfalls and Mistakes

Three tips about the best time frame and cadence for KPIs.
Three tips about the best time frame and cadence for KPIs.

Filed Under: KPI Tagged With: cadence, strategic planning, time frame

KPIs vs OKRs

December 29, 2020 by Dustin

Metrics combine two or more measures to provide context and more information.

Key Performance Indicators (KPIs) and Objectives and Key Results (OKRs) are both tools that big businesses use in strategic planning and execution. They’re also great tools for small-to-medium business to use to compete and perform like the big dogs. Let’s take a look at the similarities and differences and get a handle on why you need both.

Key Performance IndicatorsObjectives and Key Results
StructureList of measures & metrics List of overarching goals and. for each, indicators of success
DataNumeric/quantifiableQuantifiable and Activities/achievements defining success
OrientationRoll up from teams and departments to central managementBi-directional alignment. In smaller companies, tend to be management-driven.
Timing*Current & Past PerformanceForward-Looking
Role/Use*Operational Management / Execution; Check performanceStrategic Planning & Forward Management
Redefinition FrequencyInfrequent – Annually or every few years.Frequently – Every quarter, or at least every year.
Core Purpose*Guide Daily ExecutionDrive Dynamic Change & Improvement

If you walk down the table above and compare and contrast each point, you should have a really good idea of the purpose and use of KPIs vs. OKRs and when to use each.

What About That Pesky Asterisk*

Measures are point-in-time data points.

There’s just one catch. I have high expectations of myself and my clients. I don’t use Key Performance Indicators quite the way they’re intended. What’s the fun in that!

There are three items in the chart above that have asterisks:

  1. Timing
  2. Role/Use
  3. Core Purpose

Because I have my clients go beyond identifying KPIs to also define a Performance Budget, in the Pivot Habit method, KPIs become:

  1. Timing – Past performance, current performance, and forward looking.
  2. Role/Use – Strategic & Forward management as well as execution management.
  3. Core Purpose – Driving dynamic change as well as guiding daily execution.

Back to Index | Next: Benefits of KPIs

Download the KPI Planning and Tracking Worksheet

Save hours of work by starting with a pre-made Excel Workbook featuring examples, explanations, and built-in calculations.

Download the KPI Workbook

 

A comparison of KPI features vs OKR features.
A comparison of KPI features vs OKR features.

Filed Under: KPI

KPI Review Process

December 29, 2020 by Dustin

The key to extracting maximum value from Key Performance Indicators is setting up an effective review process and cadence.

Plan, Actual, Variance, and Corrective Action

Plan, Actual, Variance is the critical recipe for KPI review success.
Plan, Actual, Variance is the critical recipe for KPI review success.

Say it with me… “PAVCA!” Yeah, as acronyms go, it’s pretty bad and not very memorable. Luckily it’s just as easy to remember: Plan, Actual, Variance, and Corrective Action.

The key to a Pivot Habit KPI review is to review KPI progress against plan. Remember that we don’t just use KPIs to measure progress after the fact. We use KPIs to plan and attain progress. With that in mind, the KPI Review Process is a key ritual to check for progress, celebrate success, debug issues, and get back on track when needed.

The first key here is “Plan, Actual, Variance.” We want to be exceptionally clear about whether we’re on track, ahead of plan, or behind plan. If we’re ahead, this is a great opportunity not only to celebrate, but to look at what’s going well and see if there are opportunities to apply the keys to success more broadly in the business.

Similarly, if we’re running behind plan, this is the time to figure out why. It may be that our best laid plans just aren’t working and it’s time for a small pivot. It may also be that the accountable individual is blocked and needs some help. Whatever the issue, the review process is the time to spot and correct the issue. And that’s what we mean by “Corrective Action.”

Review Cadence

An established cadence of formal KPI review is critical to success.
An established cadence of formal KPI review is critical to success.

At the central management level, or the company roll-up, the official KPI review happens no less than monthly. This is a key ritual for the leadership team to check, celebrate, or calibrate progress.

Make no mistake, though. Company-wide, KPIs are checked much more frequently. For teams as disparate as sale teams and software development teams, the cadence is as frequent as daily. Many project teams default to formal reviews weekly. Still others to every other week.

The cadence at the department or team level is driven most often by a combination of convention as well as the actual work being managed. In particularly, the higher the criticality or risk of the work being managed, more frequent reviews make more sense.

Back to Index | Next: KPIs vs OKRs

Download the KPI Planning and Tracking Worksheet

Save hours of work by starting with a pre-made Excel Workbook featuring examples, explanations, and built-in calculations.

Download the KPI Workbook

 

Here are five tips for how to perfect a KPI review process.
Here are five tips for how to perfect a KPI review process.

Filed Under: KPI

Defining KPIs

December 29, 2020 by Dustin

KPIs, or Key Performance Indicators, should be defined carefully in order to be effective and not be a waste of time.

Let’s start out with my guidance for defining KPIs and then we’ll dive into exactly how to get the job done.

Points to Keep in Mind When Defining KPIs

Here are the key points to keep in mind when defining KPIs:

  1. KPIs roll up.
    KPis roll up from the department level to central management.Whereas OKRs align from the inside out or the top down, KPIs roll up. That is, in bigger organizations, they start at the Team level, roll up through the Department, the Business Unit or Division, and up to the Business. They are truly a centralized view of how the business is performing.

  2. KPIs are numeric.
    KPIs are numeric.This is not a time for qualitative indicators. KPIs are numeric measures or metrics. Actual numbers.

  3. Give preference to metrics, but use measures when it makes sense.
    Prefer Metrics as KPIs but use Measures when they make sense.This was addressed in the article on Measures and Metrics at length. In most cases when you’re tempted to use a measure, you can work a little more and find a metric that will provide the same and additional information. Metrics are usually preferred because they tend to lead to better goal setting and therefore better performance. However, I have often found that sometimes a simple measure just makes more sense. So do what makes sense to you.

  4. Use a good mix of Performance Metrics and Outcome Metrics.
    Nail down Performance KPIs that explain your OUtcomes.Do focus on a good mix of both Performance Metrics and Outcome Metrics. You should hold as your goal to discover all or almost all of the Performance Metrics that explain all or almost all of your Outcomes. Nailing down what leads to excellent performance can have multiplying results on the business in very short order.

  5. Less is More.
    It's better to create fewer, better KPIs than more.It’s easy to get carried away creating KPIs. Remember that you’re going to need to gather all of this data at least monthly and some you’ll want to look at weekly. Give preference to a lean set of numbers that tells you the most about your business for the least amount of work.

Download the KPI Planning and Tracking Worksheet

Save hours of work by starting with a pre-made Excel Workbook featuring examples, explanations, and built-in calculations.

Download the KPI Workbook

 

Steps to Defining Key Performance Indicators (KPIs)

Let’s get down to the business of defining KPIs and looking at some sample definitions. These are the exact same steps I take my clients through when I’m introducing a new client to the KPI and Performance Budgeting process.

It’s important to realize that when I talk about laying out KPIs, I do it in two steps:

  1. First, I define the KPI itself. That’s what we’re doing in this article. That just means agreeing on the KPI to track, agreeing on its definition and why its important, and agreeing on where and how we’re going to measure it.
  2. Second, I have my clients lay out a Performance Budget. That is a month-over-month plan for the performance in each KPI, much like a financial budget. Most folks don’t do that and just track their performance. That’s not the way I roll. I use KPIs in performance acceleration.

Let’s get to the planning. First click on the example below. We’ll refer to it as we step through.

Sample KPI definition worksheet
https://pivothabit.com/wp-content/uploads/programs/prosperity/kpi-definition.png
  1. Identify your “Departments”
    First define your departments.Even if you’re a solo or a small 2-4 person leadership team, it helps to think of your business as having “departments.” This helps you think of the critical facets of your business, the roles you need to fill, and the critical aspects you want to measure.

    The default departments I start my clients off with as a starting point in my KPI Tracking and Performance Budget Workbook are:
    1. Finance
    2. Sales
    3. Marketing
    4. Operations
    5. Human Resources

  2. Identify your candidate KPIs within each department
    Rapidly identify each candidate KPI.First, take a pass through each department and just jot down some metrics you think might make good KPIs. Don’t get hung up with anything like numbers or definitions at the moment. Just move quickly, making not of what comes to mind.

    If you expand the example above, you’ll see I’ve got some example KPIs already entered on the Sales tab. In the KPI Tracking and Performance Budget Workbook, I’ve got sample KPIs already entered on every page. Some will match your business and your business model perfectly, and others won’t make any sense and will need to be adjusted or deleted.

  3. Take a pass through and “define” each KPI
    Define each KPI using the template provided.If you look at the sample above again, you’ll see I’ve got several columns that, taken together, serve to define the KPIs in a very specific way. Suffice it to say I’ve learned a few things through experience. For example, sometimes when you’re defining a KPI, actually defining it (for example, does Revenue include returns and credits? Or do we subtract out returns and credits?) may take some discussion. Without fail, if we don’t write down what we decided, as little as a month or two down the road, we forget what we decided and we have the same discussion again, and again, and again.

    So here are the columns in the spreadsheet and how I use them to define KPIs:
    1. Metric, or KPI Name. What is it that we’re measuring? What are we calling this thing? For example, “Work in Progress” or WIP is a very common measure in service based businesses that pre-book backlogs of work. We’re just interested in the name.
    2. Definition. How do we define this thing? This is especially important when there are similar measures and metrics, where it took us a long time to decide, etc. It is amazing how often we’ll get 3-4 months down the road and disagree on how something should be defined. For example, if you have metrics named “Overall Turnover,” “Short-term Turnover,” “Involuntary Turnover,” and “Voluntary Turnover,” this is where you define each so you can keep them straight.
    3. Importance. A definition doesn’t always make it clear WHY a KPI is important. This is your chance to give the purpose of value statement that’s attached to a particular KPI.
    4. Source. This tells what data we’re using to source the KPI. NOTE: the examples in the downloadable spreadsheet are necessarily generic. Yours should be specific. You should name the names of actual reports if possible, or data sources, etc.
    5. Comparison. (as used in my spreadsheet) Determines whether our mathematical comparison is made as less than, equal, or greater than plan. Possible values:
      1. <
      2. <=
      3. =
      4. >=
      5. >
    6. Type. (as used in my spreadsheet) Determines the comparison type for the Year to Date and Overall comparisons. Possible values are:
      1. Cumulative. For example, monthly planned revenue of $100,000 measured under a Cumulative Type would add up to $1,200,000 over the full plan.
      2. Average. For example, monthly planned revenue of $100,000 would average out to $100,000 over the full year plan.
      3. Point-in-time. For example, the amount that would be reported would be the last month with a value. In the case of a revenue budget, if the last planned value was $100,000, that’s what would be reported.
    7. Threshold. (as used in my spreadsheet) Determines the Red/Yellow/Green thresholds the represent KPI health. Three possible values are possible and fully adjustable. To adjust the thresholds, see the Threshold Value adjustment on the Instructions tab in the spreadsheet. The pre-determined values are:
      1. Default: 20% Green to Yellow; 40% Yellow to Red
      2. Set 2: 1% Green to Yellow; 5% Yellow to Red
      3. Set 3: 10% Green to Yellow; 20% Yellow to Red
    8. Base. The approximate starting value for the KPI. Not used in calculations for your reference when setting your plan.
    9. Target. The target ending value for the KPI. Not used in calculations for your reference when setting your plan.

Back to Index | Next: Defining a Performance Budget

Download the KPI Planning and Tracking Worksheet

Save hours of work by starting with a pre-made Excel Workbook featuring examples, explanations, and built-in calculations.

Download the KPI Workbook

 

Five key things to remember when defining KPIs.
Five key things to remember when defining KPIs.

Filed Under: KPI

Defining a Performance Budget

December 29, 2020 by Dustin

After you’ve chosen and defined your KPIs by deciding what measures and metrics to use, it’s time to define a “Performance Budget.”

You’ll remember that a Performance Budget is a lot like a financial budget… just for the performance of the business against the measures and metrics we’ve chosen as KPIs. Instead of “setting and forgetting” KPIs, or even “setting and measuring results” of KPIs, I have all my clients plan out the performance of their KPIs. In this way, KPIs become a strong part of the strategic planning toolset and help drive the performance of the company.

As we’re plotting our the Performance Budget, there are three things we need to deal with:

  1. The various types of KPI values.
  2. The monthly “Plan” numbers themselves.
  3. Tuning the visual feedback we’ll get from the KPI Planning & Tracking Worksheet.

Types of KPI Values

As we’re looking at the Types of KPI values, here’s that sample from the KPI Planning & Tracking Worksheet again:

Sample KPI definition worksheet
https://pivothabit.com/wp-content/uploads/programs/prosperity/kpi-definition.png

You’ll remember that we have three (3) KPI Types:

  1. Cumulative, where each of the monthly values add up to an annual total.
  2. Average, where the mean of the monthly values is used for the annual value.
  3. Point-in-Time, where the last provided value is used as the annual value.

It’s important to “let your data speak” and pick the right Type for your data value. Make sure this piece is correct before you start filling in your monthly Plan values.

Planning the Monthly Performance Budget

KPIs are most powerful when used to establish a Performance Budget.

Planning the monthly Performance Budget is as simple as filling in the “Plan” box for each month for each KPI.

I say “as simple as” knowing full well that some of my more detail oriented clients break into full panic-induced sweats at this point in the exercise. Please don’t. No one is going to get out a tape measure and check your accuracy. Also, please remember the philosophy of “Pivot Habit” — we’re going to assume the need to make small course corrections as we go (dare I say… “pivots”) and that’s ok. Just fill in the numbers as rapidly and completely as you can.

I’ll add just two notes:

  1. If your KPI is quarterly, semi-annually, or even annually, there is no need to fill in every month. Fill in the months where you “plan” to have data. Do not manufacture data points where there will be none.
  2. It’s okay to use straight line numbers for your first pass… unless you already know that your data is really lumpy or really seasonal. Then make some good faith effort to represent that. For example, if your business is all about Christmas, don’t use straight line. Represent your revenue and costs seasonally. Just don’t worry about being 100% correct on this pass.

One important note. For this first pass, we’re just “forecasting,” not goal setting. For more about the difference, check out the article about using KPIs for strategic planning. For the moment, just know that you don’t need to worry about trying to do goal setting or plan for improvement. Just forecast performance based on what you know.

Download the KPI Planning and Tracking Worksheet

Save hours of work by starting with a pre-made Excel Workbook featuring examples, explanations, and built-in calculations.

Download the KPI Workbook

 

Tuning the Feedback

Use stop light colors to tune feedback from KPIs.

It’s important to have easy and rapid visual feedback about the performance of your KPIs. In Excel, this is accomplished with a tool called Conditional Formatting. You can apply Conditional Formatting rules from the Styles menu on the Home tab.

If you’re using the KPI Planning & Tracking Worksheet and if you experiment with adding some “Actual” values, you’ll quickly discover that the “Default” cut-off between Red and Yellow is 60%, and the cut-off between Yellow and Green is 80%. In this tool, these values are completely controllable by you. Just use the “Threshold” column to choose between the Default set, Set 2, or Set 3. The thresh9old values for each are:

  • Default: Red to Yellow: 60%; Yellow to Green: 80%
  • Set 2: Red to Yellow: 95%; Yellow to Green: 99%
  • Set 3: Red to Yellow: 80%; Yellow to Green: 90%

Even these specific values may be controlled by you. In the Worksheet, go to the Instructions tab and find the section labeled “Threshold Values.” Experiment with the settings until you find the combinations that work for your data.

Bringing it Together

Defining a Performance Budget against the right KPIs is one of the most powerful steps you can do for your business. When you focus on execution and growth month over month, amazing things can happen.

Back to Index | Next: KPI Review Process

Download the KPI Planning and Tracking Worksheet

Save hours of work by starting with a pre-made Excel Workbook featuring examples, explanations, and built-in calculations.

Download the KPI Workbook

 

Tips on creating a performance budget for KPIs.
Tips on creating a performance budget for KPIs.

Filed Under: KPI Tagged With: performance budget

Benefits of KPIs

December 29, 2020 by Dustin

The benefits of adding Key Performance Indicators (KPIs) into your business are incredible. Here are some of the most critical benefits I see my clients experience.

  1. More information in less time.
    KPIs provide more information in less time.When you choose the best KPIs and stay focused on the critical few, one of the best benefits is the ability to see more information about your business than you ever have before, and do it in less time. My clients enjoy having more information and confidence about their business performance, while having fewer, shorter meetings about business management.

  2. Build a track record.
    KPIs create a clear track record of performance.It’s a natural human tendency for managers to think previous quarters were either much better or much worse than they actually were. These false memories can drive reactionary decision making that doesn’t serve the business well. Creating, planning, and recording results against well-chosen KPIs creates a track record of performance recorded in black and white.

  3. Drive focus on the critical aspects of the business.
    KPIs create clear focus within the business.KPIs provide a focusing function. The process of identifying KPIs is itself a focusing exercise. In creating and using KPIs, you’re extracting the most information from your business in as few data points as possible. That’s a powerful mechanism for keeping yourself and the leadership team informed and ready for action.

  4. Create a culture of higher performance and accountability.
    KPIs create a culture of performance and accountability.Especially when paired with a Performance Budget, KPIs create a culture of performance and accountability. In part because KPIs are so incredibly focused, the information presented carries an obvious sense of urgency. When things are going well, celebration is obvious. When the KPI data shows deficiency, urgency to take corrective action is equally obvious.

  5. Create consistency in management.
    KPIs cause managers to be more consistent in their management approach.The focus and clarity provided by KPIs also tends to make managers less reactive and more consistent. That is, managers who are otherwise intuitive in their management style or intuitive through lack of data suddenly become much more data driven. That is not to say intuition doesn’t play a role. Intuition has an important place in business. It is simply to say that KPIs provide an excellent basis for data-driven decision making, and that tends to increase the predictability and consistency in decision making.

  6. Anchor daily execution in a common business language.
    KPIs create a common language of performance across the business.To use a metaphor, the concept of a “common business language” is the concept that everyone in the band is playing from the same sheet of music. When everyone is looking at the same key indicators, it takes far less time to determine how the business is performing and what to do about problems. It’s as if the business has it’s own “shorthand” for communicating within and between teams. We know what matters to each other and to the company as a whole.

The benefits of KPIs are tremendous, especially considering how little effort they take to establish and maintain, and the streamlining effect on the business.

Back to Index | Next: KPIs as Strategy and Alignment

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Six reasons why you need to make KPIs a top priority in your business planning.
Six reasons why you need to make KPIs a top priority in your business planning.

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