Corporate Turnaround Management: WHAT GETS MEASURED GETS MANAGED!

Key Performance Indicators (KPI’s) provide you with valuable business intelligence.

When was the last time you measured the true cost of your human resources? Do you know how much it cost to hire, replace and train new staff in the past 12 months? The majority of management teams wouldn’t have this information readily available.

Do you know what your total cost of distribution is, taking into account return on sales, customer service levels, overdue purchase orders or backorders subsequently cancelled?

Your business is creating its own intelligence without you even knowing it. With every quote, transaction or production cycle you’ve gathered data that can assist you with improving the performance and value of your business.

By developing a solid KPI system that is relevant, you are left with more time to better manage your business – and yourself!

Depending on your business and industry you should consider monitoring the following KPI’s on a weekly and/or monthly basis:

§ Total sale transactions
§ Average revenue per customer
§ Number of new customers
§ Customer conversion rate
§ Gross profit as a % of revenue
§ Gross profit % per customer and product
§ Net profit as a % of revenue
§ Staff turnover
§ Customer satisfaction levels
§ Average order/service time
§ Average website hits
§ Debtor, creditor and inventory turnover levels
§ Major operating costs as a % of revenue (ie. fuel)

Once you have these measures in place you are then able to identify any key trends that are emerging.

Revenue may be decreasing but unless you know it is due to fewer transactions, excessive discounting or simply a reduction in the average order value you may implement strategies which worsen the situation.

With this “business intelligence” to hand you are then able to make informed decisions that will improve profitability and cash flow.

The key to implementing effective KPI frameworks is to:

1. Understand the key drivers of your business and the industry within which you operate.

2. Know your industry benchmarks so you can compare your business to best practice.

3. Ensure your KPI’s meet your organisational goals.

4. Determine how often they will be measured and reviewed.

5. Decide who needs to agree the KPI’s to be measured. Ideally, the KPI’s will be constructed in discussion with the key people who have control over the particular areas. This will ensure their “buy-in” to the process which is critical.

6. Keep in mind that the KPI’s should be about your objectives. If you live and die by what your competitors are doing, and how they measure their own success, you will loose sight of your own goals.

7. Ensure you have a suite of “Lead” and “Lag” KPI’s. Lead KPI’s are those that give you an indication of future performance such as quotes done, number of new leads etc. This allows you to make decisions in real time rather than waiting until after the fact. Lag KPI’s are those that simply reflect past performance such as total sales completed, gross profit etc.

If you would like to discuss this topic further please feel free to contact us.

Regards,

Michael Fingland
Managing Director

M +61 407 226 968
T +61 7 3229 5750
F +61 7 3229 5765 Level 5, 247 Adelaide Street
Brisbane QLD 4000

mfingland@vantageperformance.com.au

http://www.vantageperformance.com.au/