Have you performed a Key Performance Indicator (KPI) audit in the past quarter or two? This is something I recommend to clients on a routine basis. Quarterly planning is a good time to review your KPI’s and see if there are indicators that have outlived their usefulness because the project is complete, the process is under control or they relate to a quarterly or annual theme that is no longer relevant.
As a rule, most dashboards consist of leading and lagging/results indicators. While both types of indicators are necessary, leading indicators are much more powerful and give you the opportunity to make adjustments that will produce the results you desire. Results indicators tell us if we hit our targets, but are historical in nature. The goal is to balance results indicators with leading indicators.
Leading indicators give you the power to change the future.
As you take the time to audit your KPI’s, here are some general guidelines to keep in mind.
· Less is more. Limit the number of KPI’s you monitor, 2-3 KPI’s per category is good
· Develop KPI’s for 6 primary categories: Employees. Customers, Shareholders, Make/Buy/Deliver, Sales, and Record Keeping (Financial)
· Balance results indicators with 1-2 leading indicators
· Use composite KPI’s when you need to roll up information from different divisions, departments or territories
· Develop clear success criteria using the red, yellow, green approach
· Make sure the team agrees with the success criteria - discuss, debate and agree as you develop
· Develop 2 Critical Numbers (1 people and 1 process) that support your quarterly theme and make them your two most important KPI’s for the quarter
· Drive KPI’s down to the group level and only monitor those that are absolutely necessary at the executive level
· Develop dashboards for each level of the organization
· Inure that each KPI has an owner that is responsible for the results
· Set realistic success criteria. It is okay to raise the bar in subsequent quarters, so do not set your team up for failure early by setting the bar too high
· Use numbers or descriptions of the desired outcomes for your success criteria
· Test and adjust after you complete the audit to insure you are monitoring the right things that allow you to make the right adjustments and produce the desired results
Leading indicators are predictive.
Here are Four Steps to Developing Leading Indicators:
Step 1: Identify the problem. What is the goal and what business problem are you trying to solve.
Step 2: Clarify the desired result. What does success look like and how will you know you have achieved it? What outcome are you looking for in measurable terms? This will be your results indicator.
Step 3: Dig deeper with questions. Use the "five why’s" to ask questions to understand what leading indicators drive the results you are looking for above.
Step 4: Drive results. What is the best leading indicator that drives results and what is the Red-Yellow-Green success criteria that measures performance?
What is in a color? After you identify the right leading and results indicators, develop clear success criteria. Develop Red-Yellow-Green and Super Green Success Criteria.
Green is the goal you are trying to achieve for the quarter
Red is failure and unacceptable
Yellow is between red and green
SuperGreen is your stretch goal for the quarter
Push the team to be clear on the criteria. You need criteria that you can obtain the data for, make appropriate adjustments from, and drives the desired performance. Use numbers whenever possible.
Update and review your dashboards weekly with your team, spending extra time working to correct any KPIs that are not statused Green or SuperGreen
Auditing your dashboards throughout the year will insure you are measuring and monitoring the right things so that you can make the necessary adjustments to reach your goals.
There are a lot of KPI’s that will carry over from quarter to quarter, but there are just as many that should be eliminated. Be honest as you conduct the audit. If you are not gaining any useful information or making adjustments, kill the KPI. The fewer you monitor on a weekly basis, the more tuned into the ones that remain you will be. Developing the right KPI dashboard is an iterative process and takes time. Be patient as you test and make adjustments.
Good luck and push your team hard as you audit your dashboard this quarter.
Execute well, Alan
Rhythm Systems KPI Resource Center