To keep score of anything, you have to identify the triggering event. It can be a ball going through the hoop or matching up numbers on a bingo card. In a business environment, a company may have hundreds of triggering events, also known as Key Performance Indicators (KPIs). Measuring KPIs will provide a value or score, just like the ball going through the hoop; only this score will help you make critical decisions in real time.
Identifying Key Performance Indicators (KPIs)
In business, we know that Revenue less Expenses equals Profit. However, to identify and define valuable KPIs, you need to focus on the underlying activities that take place within the business. Those underlying activities generally involve people and processes. Each activity will have associated KPIs that can be measured. Measuring KPIs at the activity level gives better information to aid in the decision-making process. Also, the KPI’s score can change at a faster rate than the overall profit, allowing processes to be modified and improved quicker.
The process in this example is a Customer Interaction over the telephone. KPIs could measure:
- The time it takes to answer the phone
- Inquiries converted to sales
- Problems raised vs. problems solved
- The number of people contacted before a problem was solved.
- Amount of time customers spend on hold
A couple of helpful tips:
Only use KPIs that represent the critical activities in your business. Monitor the results at intervals that make sense with your business cycle. Develop a scorecard or report to keep track of the results.
Engage and Empower your People to Improve the Numbers
The next step is to give feedback to your people, so they can see how they can make an impact. Now, instead of you controlling each activity, you have a whole team focused on improving the KPIs, resulting in a well-rounded company.
Engagement of your People can be accomplished by:
- Identify KPIs for each area of business and educate the team about the link between their performance and the financial realities of the business.
- Post the Score. The team needs regular and consistent feedback about their performance. Without this, they will cease to care.
- Recognize Effort. It takes some time for changes to appear on the bottom line, and not every effort will have an immediate, discernable result, but it is important to recognize the effort along the way.
- Reward Improvement. KPIs link company goals with performance and compensation.
Whether the triggering event is a ball going through a hoop or the number of telephone inquiries received, small changes in a process can have a big change on the score. Start brainstorming today to identify KPIs in the critical activities of your business. TDT is available to help you identify those KPIs occurring in your business.
Darcee Ayers is a Tax Manager with 28 years of experience in the public accounting profession. Darcee specializes in exempt organization tax issues as-well-as trust and corporate taxation. She is currently a member of the Iowa Society of CPAs and the American Institute of Certified Public Accountants.