The Importance of Key Performance Indicators using Business Intelligence (BI)
How Tracking KPIs Impacts Business Development and Success
If you own a business, you should be tracking KPIs–metrics that are used to measure business success and promote solid business development.
If you’re not yet, today is the day to get started. The reason: KPIs help you observe trends and provide insight into what you should/should not be doing to improve your overall performance.
The idea of tracking such metrics might seem a little overwhelming. But, the process of tracking basic KPIs doesn’t have to be (especially with a little help from a consultant).
Why are key performance indicators vital to your business development success and what should your organization be tracking? Let’s take a look…
3 Ways KPIs Contribute to Company Success
When we talk about KPIs we often focus on analyzing the data that contributes to measuring profitability. However, there are 3 key areas–all of which ultimately contribute to your bottom line–that must be tracked measure success.
1. KPIs Strengthen Employee Morale/Personal Professional Growth
Too often we measure the downfalls of our employees–where they can fine-tune their skills to continue to help you reach your business objectives.
While this is important, it’s also vital to track KPI data that recognizes positive trends in order to strengthen employee morale and encourage professional growth.
When you analyze what a person is doing right, you’re able to encourage the employee actions that have led to your success. With encouragement comes happier, more confident employees within your organization–a win for everyone!
2. KPIs Support and Influence Business Objectives
KPIs keep business objectives as a large part of your decision-making processes.
If you don’t know where you are failing or succeeding, it becomes hard to pinpoint what objectives you should be focusing on. When you have hard data on your business performance, you know where to focus your efforts.
Once you have defined objectives, you can clearly communicate to your employees what your goals are so everyone can work as a team to intentionally ensure your goals (whether it be cash flow projection or long term financial planning) are met as a team.
3. KPIs Are Critical for Performance Management
If you don’t monitor your KPIs, you won’t know what needs to be managed to ensure your business performs more successfully.
KPIs provide transparency into what is working and what is failing in your organization. Once you have this information you can manage your current systems and make better decisions to ensure more successful outcomes.
It’s clear that measuring KPIs are essential for success. But, what should you be measuring? There are hundreds of things you can monitor, but here are 3 key KPIs that should be at the top of your list.
1. Sales Growth
Sales growth is a metric that enables you to set and forecast realistic revenue objectives over a fixed period.
Tracking this metric allows you to take note of both positive and negative growth trends so you can pinpoint where you are succeeding or struggling within your company.
2. Revenue Concentration
Monitoring revenue concentration helps you ensure that the majority of your revenue isn’t coming from a small percentage of client–AKA diversification (don’t put all your eggs in one basket!)
Though tracking this metric, you can make sure that your revenue income is being evenly distributed amongst a handful of clients so it’s not catastrophic if you were to lose a source of revenue.
3. Return on Equity
Return on equity is by far one of the most important metrics all businesses should be tracking.
Its purpose: To reveal how much your company has earned in comparison to your total shareholder equity. Knowing this number gives valuable insight into not only your company’s profitability, but also how efficiently your organization runs.
How to Develop Effective KPIs
How do you determine what you need to track? Here’s a brief overview of how you can determine, implement, and discover what’s most important for your organization to track.
1. Identify your data needs–what metrics are most important to you?
2. Determine the right measurement methodology and frequency of compiling data.
3. Assign ownership for your KPIs to employees within your organization.
4. Ensure KPIs are understood by people within your organization via training.
5. Review/test your KPIs to ensure they help improve performance.
How to use Business Intelligence (BI)
Business Intelligence (BI) refers to technologies, applications and practices that support your efforts in making smarter decisions on behalf of your business.
How can you use the power of BI to save time and money to obtain your desired KPI? Here’s a quick rundown…
- Invest in the setup of gathering information from your ERP and accounting systems.
- Use BI tools such as Microsoft Power BI to aid in visualizing your data.
- Automate the integration of your BI technologies so it takes less than 1 hour to prepare every time.
If you own a business and are struggling to monitor the KPIs that are essential to your organization’s success, our financial experts at FBK financial business consulting services can help. Contact us today to get access to financial planning solutions that will make your business thrive for years to come!