A Guide to Key Performance Indicators
20 January, 2022
Business analytics is a powerful tool across all industries. Companies are generating vast amounts of data which, in turn, increase the need to interpret and analyze that information. In light of this trend, an in-depth understanding of business analytics can be a way to advance better decision-making in the company.
Companies use analytics to improve process and cost efficiency, drive strategy and change, and monitor and improve financial performance. The benefits of analytics include making more informed decisions, significant financial returns, and improved operational efficiency.
Your key performance indicators (KPIs) should cover three main business analysis methods:
Descriptive: The interpretation of historical data to identify trends and patterns.
Predictive: The use of statistics to forecast future results.
Prescriptive: The application of testing and other techniques to determine which results will produce the best result in a given scenario.
Measuring and monitoring business performance is crucial, but focusing on the irrelevant metrics can be harmful, as time and money are spent measuring, monitoring, and trying to optimize metrics that don’t matter. Furthermore, KPIs that demand vast time and resources for their measurement, are too complex or poorly structured, can also harm the company. Therefore, choosing appropriate KPIs is crucial. But how do you ensure that you select the right KPIs?
The most important factor to consider when choosing KPIs is their alignment with your company’s objectives. In addition, you should select different KPIs for different levels of management. Executives are likely concerned with medium and long-term objectives, middle management with medium and short-term objectives, and line operators with short-term goals. Ideally, those objectives and relating KPIs are interrelated to ensure all efforts are aligned within the organization and feed into improving the most important long-term objectives. KPIs can only be meaningful to your company if you choose them yourself. It does not add value to copy KPIs from competitors or other companies blindly.
Make sure the KPIs you pick are attainable. If data behind a KPI cannot be obtained or if doing so would be overly costly, there is no point in choosing that KPI for your company.
Select specific KPIs. KPIs should keep everyone on the same page and moving in the same direction. They should be specific enough to inform particular actions. If a KPI level is too high or too vague, it can be interpreted in many different ways and actioned in many different ways, which should be avoided at all costs.
Another important consideration in choosing KPIs for your company is the accuracy and the reliability of data flowing into the KPI in predicting business performance. A KPI should only be selected if it can be measured accurately and reliably.
One of the most important considerations when choosing a KPI is whether the KPI is operational and actionable. If the conditions that affect the KPI are beyond the company’s control, then the KPI cannot be actioned and should not be selected.
It’s easy to get comfortable with a set of KPIs that you’ve depended on for a long time, but your company is not static, and your KPIs should not be either. Take the time to review your reasons for choosing specific KPIs periodically. At the same time, you should regularly check your processes for monitoring and acting on your KPIs.
In this complex and dynamic area, it is hard not to lose focus on the metrics that are truly critical to your company. With the Financial Navigator’s Analytics and Reporting feature, you gain valuable insights into your company’s performance. The customizable KPI Dashboard automatically tracks and reports your company’s performance, offering you the most relevant information for your company and your role. The standardized and automated business and treasury reporting allow you to optimize financial performance reporting further, as they can be tailored to the respective audiences.
Our Analytics and Reporting feature allows you to:
Automated business reporting based on aggregated data
Identify risks and business opportunities with our comprehensive set of KPIs
Receive an early warning system with action recommendations