KPIs - James Price
If there is one thing I have seen done time and time again it's reports with a few ratios labelled Key Performance Indicator (KPI) stuck on the bottom, a last minute thought to make it relevant. When it comes to picking KPIs in a report, there really are a limitless amount of choices. They will vary by industry, department, product, audience, report purpose and ultimately the person putting it together. This last minute addition, in my opinion, should be your starting point.
When I put a report together I think, who will be reading this? What do I want to show them so they can take action from it? I don't need to know what KPI is currently in vogue or what Dave who has been here 30 years has always used. I need to know what the value will be to the report by using this specific metric. If you can't answer that question you need to go back to the start and really set out the purpose of the report.
So many reports are produced perpetually, purely because someone before did it like this and we just replicate it each month. If I handed you an abacus and said here, this is what we should use to calculate our profit this month you would look at me like I had lost the plot, but this is the same thing! Failing to adapt to support the stakeholders in your business with new methods and developing reports is failing to take advantage of the natural steps of progression.
How do you get value from your reports? First, find your stakeholders. Who is ultimately reading these reports, then split them into groups of similar needs. These will be things like geographical views, product views, personnel views and high level consolidated views. Then you need to go and sit with each of them and understand what they are looking for and what they have control over. Your sales manager will be keen to see which of his people are making the best sales, while your marketing manager will be interested in which products have sold better after a campaign and which ones are flopping.
Everyone acts on their own interest, so think what is driving their annual bonus and performance targets. This will give you a good insight into what they want to see (this isn't always individually what will benefit the overall company but with enough stakeholders you should get a diverse enough set, i.e. finance, sales, marketing and HR).
When you have the feedback from the stakeholders you can start to build your report. You want to structure it so it's easy for people to jump into the section relevant to them. Start with an executive summary. Imagine you own this company, don't have day to day involvement and want to know what is going on. What high level KPIs best reflect this snapshot of performance. Think of the period this covers, if it's monthly you would want more granular details while if it is quarterly or annual you want a more high level view.
Things to include could be profit margin, cost to revenue ratio, Payable, Inventory and receivable days outstanding, turnover per head, travel and entertainment to revenue ratio. These will all depend on how your conversations went with the stakeholders, but think high level shop window sort of information at a glance.
Next you will want to add some sort of comparison. Yes that is a great profit margin but how were you doing last month? Last year? Compared to budget? Forecast? These are key for KPI's and they add perspective that is vital to see the success of recent strategic decisions and feedback on your direction and business model.
The next sections can be in groups of business areas (HR, finance, sales etc), geographically, by product or account. There are a lot of options and that is up to you to figure how your business works and what makes the most sense to group. For each area think along the lines of how much did you make, where did you make it on and how much did it cost you to get that revenue. These can be a great way to separate out your segments of the business and turn the executive summary high level view, into a more granular, what really happened view. Was your revenue driven by one big sale this month from a customer and the rest of them were down?
Numbers are very good at hiding and a good report can tease them out and show the bare facts to help management decisions be more informed and productive. This is where picking your KPIs will support you and really allow you to add value and give actionable insights. By showing relationships between the numbers you can give a clear picture of progress over time and vital feedback to the business on areas that need attention or areas of strength to capitalise on.
I won't flood this with KPI's you can use, they are easily available and will be specific to your audience if you have invested in the conversations with the business. Don't forget management reports are more than just financial, include personnel turnover, efficiency of staff, footfall and season trends if applicable. You want to include anything that will give the reader an actionable insight that they can use to make strategic decisions!
Lastly and very importantly don't forget to keep the dialogue. Don't change your reports every month because the consistency will be key to monitoring the medium and long term performance, but keep the content relevant and actionable. Think, what will they do differently after reading this?