performance budget

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:

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

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.

 

Tuning the Feedback

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