For those of you who painfully slogged your way through the budgeting process for the new year–or those of you who are putting your final touches on your plan –you are probably happy that process is done, or almost done.
So now what?
Some of you will shelve the budget until you go through the exercise next year. Some of you will actively manage to your budget, and some of you will reforecast that budget throughout the year. For the latter two, kudos to you.
Whatever your approach to managing to your budget this one thing holds true: To get from where you are today to where you want to be requires action. Lots of it.
Beyond just making a lot of sales calls, beyond making sure your employees are spending most of their time in “billable” activities, you need to make sure you are doing the right activities to achieve the numbers on your shiny new budget.
That’s where KPIs (Key Performance Indicators) come in. You have to measure what matters.
In the coming months we’ll be running a series on some critical KPIs you should have in your business, but for now here are some reasons why you establish KPIs for the new year.
- They keep people aligned. When people understand a clear target they are more likely to hit it. KPIs are hard metrics, like close ratios, number of leads, etc. There’s not a whole lot of “fluff” to a good KPI.
- It simplifies the complex. There are a lot of moving parts to daily operations and achieving goals as outlined in the budget. Establishing good KPIs will boil down the complex into a few metrics that are more actionable.
- They provide balance. Sometimes we see clients focus on one number to the exclusion of all others. In most cases KPIs measure relativity of two metrics, say sales and profit. Not only is there balance within each metric but when you measure more than one KPI you start to develop a balanced scorecard ensuring that you are taking a holistic approach.
- They give you a warning if you are off track. By setting benchmarks by which to measure performance—not only budgeted numbers but establishing KPI targets you are more easily able to course correct.
- They keep people informed without revealing all your cards. Financial data is sensitive, and not every company wants their employees to know the full financial picture. KPIs allow you reveal select measures of the company’s performance without giving employees information to more sensitive information about the firm.
Deciding on what KPIs to measure in your business may not be that hard. If you’ve been working in your firm for a while, you may find that you already have a few that you already monitor. The critical thing is to look at those KPIs in the framework of your plan for the new year. Are they going to help you encourage the right activities and behavior to achieve the plan? If not, or if they only get you ½ way there, you should look to add some balancing metrics to help you achieve your plan for the new year.