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KPIs and metrics for Management Consultants and Managers

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Practical guide how to use KPIs to understand & manage a business
Most businesses on the face of it look very complicated and difficult to understand. On top of that the competition is so fierce that you have to take decisions based on data and not on gut feeling (a very misleading creature). That’s why it’s crucial to define and understand the main drivers and metrics measuring those drivers. If you have properly defined Key Performance Indicators (KPIs) you can understand the mechanism behind any business, you will be able to model it in Excel and you will know how to grow it or improve it. You can also use properly defined KPIs to manage people efficiently, give them goals aligned with your goals. That’s why I have decided to create a course solely concentrated on this KPIs.
This course will give you the knowledge and insight into drivers and KPIs used in different business models that can be used for understanding the business, managing it, motivating people and improving results. The course will make your life during a consulting project much easier. If you are already a manager thanks to this course you will learn how to use the KPIs to understand and grow your business.
This course will help you drastically improve your knowledge and skills in understanding and improving your business using KPIs. It is designed for management consultants and newly appointed managers that want to excel at their work. In the course you will learn 6 things:
1. How to understand the business through KPIs
2. How to use KPIs to model the business in Excel
3. How to use KPIs to manage the business
4. How to use KPIs to motivate people
5. How to use KPIs to improve the business
6. What is a good KPI
For more check my course: http://bit.ly/KPIsCourse

Published in: Business
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KPIs and metrics for Management Consultants and Managers

  1. 1. 1 KPIs for Management Consultants & Managers Practical guide how to use KPIs to understand & manage a business
  2. 2. 2 Management consultants are brutally efficient Only things that are measured get managed. That it’s why it is vital for every business to have well defined KPIs
  3. 3. 3 You will learn in this presentaiton how to use KPIs to understand and manage your business
  4. 4. 4 How the presentation is organized
  5. 5. 5 Introduction How to understand the business through KPIs How to construct a great KPI? How to model the business in Excel using KPIs How to use KPIs to manage a business? How to use KPIs to motivate people? The presentation consist of 6 sections
  6. 6. 6 Theory Practical tips Problem sets / Case studies Examples of tools and analyses in Excel You will find here 4 types of content
  7. 7. 7 KPIs for Management Consultants and Business Analysts $190 $19 What you will see in this presentation is a part of my online course where you can find case studies showing analyses along with detailed calculations in Excel Click here to check my course
  8. 8. 8 To get the most out of the presentation please try to solve the problem sets / cases studies on your own before going to the solution Problem set / Case study Pause the course and solve the problem on your own Go to next lecture where you will find the step by step solution to the problem set
  9. 9. 9 Understanding the business through KPIs
  10. 10. 10 What gets measured gets managed Peter Drucker
  11. 11. 11 Quite often you don’t understand the business. To achieve better understanding you have to define the drivers of this business and proper KPIs # transactions Average revenue per transaction Total revenuex % Fee of the marketplace Average transaction value Total searches % conversion x x Total Costs Total margin - Rent People Cost of traffic Ratio of visitors to searches Average cost of 1 visit + x Development
  12. 12. 12 KPIs help you manage the drivers of your business model Define Strategy Pick the Business Model Identify drivers Define KPIs Set targets for KPIs
  13. 13. 13 In this section we will talk about 3 things Short example on drivers and KPIs Overview of business models Cases showing KPIs for different busines models
  14. 14. 14 KPIs and main drivers – Introduction
  15. 15. 15 To understand and analyze business you have to identify the drivers / KPIs that a key for specific business and translate it into a model in Excel # transactions Average revenue per transaction Total revenuex % Fee of the marketplace Average transaction value Total searches % conversion x x Total Costs Total margin - Rent People Cost of traffic Ratio of visitors to searches Average cost of 1 visit + x Development
  16. 16. 16 Imagine that you have to estimate typical family spending's. You can take into account countless number of factors…..
  17. 17. 17 …or you can limit yourself to the most important ones i.e. number of kids, size of house, main repetitive spending like food.
  18. 18. 18 To measure the selected factors you have to use some sort of KPIs Spending per 1 person per month per category # of people in average family Average size of the house in sq. m Average rent per sq. m
  19. 19. 19 Overview of Business models
  20. 20. 20 SaaS E-commerce Media site 2-sided market User Generated Content Mobile Applications Retail B2C Service B2B Service FMCG SMCG Commodity There are 6 offline business models and 6 online models. Every business model has its set of KPI
  21. 21. 21 SaaS E-commerce Media site2-sided market UGC B2B Service B2C ServiceRetail Bear in mind that big companies can operate many business models
  22. 22. 22 In this section you will see how to define KPIs for different business model KPIs for a cinema KPIs for a marketplace KPIs for a retailer KPIs for a SaaS KPIs for a restaurant KPIs for a consulting business KPIs for a FMCG business KPIs for a SMCG business KPIs for an e-commerce
  23. 23. 23 KPIs for cinema
  24. 24. 24 Imagine that you were responsible for managing the cinema. What KPIs metrics you would look at to see whether you are doing a good job?
  25. 25. 25 Let’s see what KPIs you should look at # sold tickets Average revenue per Ticket Total revenue Total Costs x Total margin - Average price per ticket Average additional purchase per ticket Total capacity in tickets % Utilization Rent People # of People Average wages + + x x # of sq. m Fee per sq. m x
  26. 26. 26 KPIs for marketplaces – Problem
  27. 27. 27 Imagine that you were responsible for managing a marketplace for patients and doctors (i.e. Docplanner). What KPIs you would look at? Patient DoctorMarketplace • On-line booking • Reviews • Statistics for doctors
  28. 28. 28 KPIs for marketplaces – Solution
  29. 29. 29 Let’s see what KPIs you should look at # transactions Average revenue per transaction Total revenue x % Fee of the marketplace Average transaction value Total searches % conversion x x Total Costs Total margin - Rent People Cost of traffic Ratio of visitors to searches Average cost of 1 visit + x Development
  30. 30. 30 Let’s see what KPIs you should look at # transactions Average revenue per transaction Total revenuex % Fee of the marketplace Average transaction value Total searches % conversion x x Total Costs Total margin - Rent People Cost of traffic Ratio of visitors to searches Average cost of 1 visit x Development Cost of acquiring partners # of Suppliers that have to be acquired Cost of Acquirng 1 supplier x +
  31. 31. 31 KPIs for SaaS – Problem
  32. 32. 32 Imagine that you are responsible for managing a SaaS offering mailing What KPIs you would look at?
  33. 33. 33 Before you move on to the solution just a quick info on the flow of customers in SaaS Visitor Freemium / Trial User Paid User Engaged Heavy User Ambassador Conversion
  34. 34. 34 KPIs for SaaS – Solution
  35. 35. 35 Just as a reminder you are responsible for managing a SaaS offering mailing What KPIs you would look at?
  36. 36. 36 Let’s see what KPIs you should look at # of customers Average revenue per customer Gross Margin x % Fee of customer buying Plan A…. Average price per Plan A…. # of customers in the previous period Net change of customers x - Total Costs Total profit - Rent People Cost of acquiring customers + Development Customers lost New customers Churn rate CAC per 1 customer x -
  37. 37. 37 KPIs for a restaurant – Introduction
  38. 38. 38 Imagine that you have to define KPIs for a salad fast food restaurant chain 100 location in Easter Europe Fast food for salads Each and every restaurant is roughly the same size
  39. 39. 39 Main drivers for a restaurant
  40. 40. 40 Let’s first look how we could model 1 restaurant # Guests Average Purchase per Guest Average revenue per restaurant Total restaurant costs x Average EBITDA per restaurant Average Purchase per Guest of basic purchase Average Purchase per Guest of additional purchases # available seats per day % Utilization Rent People # of People Average wages + x x Others + # of sq. m Fee per sq. m x % Gross Margin on food & drinks Average Gross Margin per restaurant x -
  41. 41. 41 Now let’s model the whole chain EBITDA on restaurant’s level Rent People # of People Average wages x Others + # of sq. m Fee per sq. m x Head Office Costs Total EBITDA - # of restaurants Average EBITDA per restaurant x
  42. 42. 42 KPIs for a restaurant – Solution
  43. 43. 43 Imagine that you have to define KPIs for a salad fast food restaurant chain 100 location in Easter Europe Fast food for salads Each and every restaurant is roughly the same size
  44. 44. 44 Now lets’ look at drivers and pick the best KPIs # of Guests % Utilization Average Purchase per Guest % Gross Margin (1+ LFL / same store growth) Net change in the # of restaurants # of Guests in thousands % Utilization = # of Guests / Available Seats Average Purchase per Guest % Gross Margin LFL growth to last year / previous period Net change in the # of restaurants % change in # of guest to last year or previous period Change in percentage points in % utilization % change in Average Purchas to last year / previous period Change in percentage points in % Gross Margin to last year Net change in revenues Change in percentage points in % Gross Margin to Plan
  45. 45. 45 Now lets’ look at drivers and pick the best KPIs Cost position level Cost position to sales % increase in cost level vs last year / previous period % increase in cost level to % increase in sales Food inventory level Food inventory in Days of Sales % of food thrown away Profitability % EBITDA % Gross Margin % EBITDA on restaurant level
  46. 46. 46 KPIs for a retailer – Problem
  47. 47. 47 Imagine that you are working for a retailer based in Easter Europe The market is growing organically The retailer is opening a lot of new stores The have e-commerce
  48. 48. 48 Main drivers for a retailer
  49. 49. 49 Let’s first look how we could model 1 store # Transactions Average Value Transaction Total store revenue Total store costs x Store EBITDA Average Value Transaction of basic purchase Average Value Transaction of additional purchase # of Visitors % Conversion Rent People # of People Average wages + x x Others + # of sq. m Fee per sq. m x % Gross Margin Gross Margin generated by the store x -
  50. 50. 50 KPIs for a retailer – Solution
  51. 51. 51 Now let’s model the whole retail chain # of stores – current period Average Sales per 1 store – current period Total Revenues Total store costs x EBITDA on stores level Average Sales per 1 store – previous period (1+ LFL / same store growth) # of stores – previous period Net change in the number of stores Rent People # of People Average wages x + x Others + # of sq. m Fee per sq. m x % Gross Margin Gross Margin generated by the store x -
  52. 52. 52 Now let’s model the whole retail chain EBITDA on stores level Rent People # of People Average wages x Others + # of sq. m Fee per sq. m x Head Office Costs Total EBITDA -
  53. 53. 53 Now lets’ look at drivers and pick the best KPIs # of Visitors % Conversion Average Transaction Value % Gross Margin (1+ LFL / same store growth) Net change in the number of stores # of Visitors in thousands % Conversion Average Transaction Value % Gross Margin LFL growth to last year / previous period Net change in the number of stores % change in # of visitors to last year or previous period Change in percentage points in % conversion % change in ATV to last year / previous period Change in percentage points in % Gross Margin Net change in revenues
  54. 54. 54 Now lets’ look at drivers and pick the best KPIs Cost position level Cost position to sales % increase in cost level vs last year / previous period % increase in cost level to % increase in sales Inventory Level Inventory level in Days of Sales Average sell- through ratop at first price Dead weight stock as % of sales Profitability % Gross Margin % EBITDA on store level % EBITDA Cash Generation EBITDA to debt ratio Cash generated to EBITDA Dead weight stock as % of all inventory stock
  55. 55. 55 KPIs for a consulting business – Problem
  56. 56. 56 Imagine that you have to define the KPIs for a mid-size consulting firm It’s a partnership structure They charge customer by the hour sold They have fixed number of consultants
  57. 57. 57 Main drivers for consulting business
  58. 58. 58 Consulting is a service business. The typical model of a service model can be presented using the following logic  % Utilization# hours available # of billable hours Revenues Gross Margin Operational Profit Net Profit  Hourly fee  HQ costs Bonuses  Interest  % Gross Margin  Wages
  59. 59. 59 KPIs for a consulting business – Solution
  60. 60. 60 Just as a reminder you have to define the KPIs for a mid-size consulting firm It’s a partnership structure They charge customer by the hour sold They have fixed number of consultants
  61. 61. 61 Below the main drivers for the consulting business model # of billable hours Average fee per hour Total Revenues Total Costs x Basic fee per hour Surcharge Hours available % utilization Rent People # of People Average wages x x x Others + # of sq. m Price per sq. m x Operating profit -
  62. 62. 62 Now lets’ look at drivers and pick the best KPIs Hours available % utilization Average fee per hour Pipeline New customers New products Man-hours in thousands % utilization Average fee per hour Value of potential projects Man-hours in thousands from new customers Man-hours in thousands from new products # of consultants Change in percentage points in % utilization % increase to basic fee per hour # of potential billable hours from potential projects Net change in revenues Revenues from new customers Revenues from new customers as % of all revenues
  63. 63. 63 KPIs for a FMCG business model – Problem
  64. 64. 64 Imagine that you have to define KPIs for a cosmetics producers. 2 brands. 1 stong in Poland the other in Romania. No e-commerce. Penetration in some regions is stronger than in others.
  65. 65. 65 Main drivers for FMCG model
  66. 66. 66 The FMCG business model is driven by some basic KPIs # sold Unit production cost Gross Margin Head office Operational profit Fixed Cost / Quantity produced Unit variable cost + Cost of sales & marketing Net Margin - - Average price Unit Gross Margin - x Market share Market size
  67. 67. 67 KPIs for a FMCG business model – Solution
  68. 68. 68 Imagine that you have to define KPIs for a cosmetics producers. 2 brands. 1 stong in Poland the other in Romania. No e-commerce. Penetration in some regions is stronger than in others.
  69. 69. 69 Now lets’ look at drivers and pick the best KPIs # sold Unit Gross Margin Cost of sales & marketing Brand awareness New products Reach # of pieces sold Gross Margin per piece sold Cost of sales & marketing as % of Sales Top of the mind brand awareness % of sales generated by new products Weighted distribution % Market share % Gross Margin % Net Margin Supported brand awareness Numeric distribution Average price sold % Discount given to retail chains NPS score % of Net Margin generated by new products
  70. 70. 70 Now lets’ look at drivers and pick the best KPIs Cost position level Cost position to sales % increase in cost level vs last year / previous period % increase in cost level to % increase in sales Working capital Level Inventory level in Days of Sales Receivables level in Day of Sales Payables in Days of Production Profitability % Gross Margin % Net Margin % EBITDA Cash Generation EBITDA to debt ratio Operational cash flow to EBITDA Dead weight stock as % of all inventory stock Dead weight stock as % of sales Capex to EBITDA
  71. 71. 71 KPIs for a SMCG business model – Problem
  72. 72. 72 Imagine that have to define KPIs for a smartphone producer He operates in Easter Europe Products are sold to mobile phone operators and end customers His customer use the product for 2 years on average
  73. 73. 73 Main drivers for SMG business model
  74. 74. 74 The SMCG business model is driven by some basic KPIs # sold Unit production cost Gross Margin Head office Operational profit Fixed Cost / Quantity produced Unit variable cost + Cost of sales & marketing Net Margin - - Average price Unit Gross Margin - x Market share Market size
  75. 75. 75 KPIs for a SMCG business model – Solution
  76. 76. 76 Imagine that have to define KPIs for a smartphone producer He operates in Easter Europe Products are sold to mobile phone operators and end customers His customer use the product for 2 years on average
  77. 77. 77 Now lets’ look at drivers and pick the best KPIs # sold Unit Gross Margin Cost of sales & marketing Brand awareness New products Reach # of smartphones sold Gross Margin per piece sold Cost of sales & marketing as % of Sales Top of the mind brand awareness % of sales generated by new products Weighted distribution % Market share % Gross Margin % Net Margin Supported brand awareness Numeric distribution Average price sold % Discount given to retail chains NPS score % of Net Margin generated by new products
  78. 78. 78 Now lets’ look at drivers and pick the best KPIs Loyalty base End-customer share # of registered customers % share of revenues generated by end-customers % of registered customer that re- bought phone % share of Net Margin generated by end-customers % of phones sold directly to end- users Cost position level Cost position to sales % increase in cost level vs last year / previous period % increase in cost level to % increase in sales Working capital Level Inventory level in Days of Sales Receivables level in Day of Sales Payables in Days of Production Profitability % Gross Margin % Net Margin % EBITDA Cash Generation EBITDA to debt ratio Operational cash flow to EBITDA Dead weight stock as % of all inventory stock Dead weight stock as % of sales Capex to EBITDA
  79. 79. 79 KPIs for a commodity producer – Problem
  80. 80. 80 Imagine that you have to define KPIs for a plywood producer 3 plants Wood supplies done by independent suppliers Sales done via wholesalers
  81. 81. 81 Main drivers for Commodity business model
  82. 82. 82 The commodity business model is driven by some basic KPIs # sold Unit production cost Gross Margin Head office Operational profit Fixed Cost / Quantity produced Unit variable cost + Cost of sales & marketing Net Margin - - Average price Unit Gross Margin - x Customer catchment area Supplier Catchment Area
  83. 83. 83 KPIs for a commodity producer – Solution
  84. 84. 84 Imagine that you have to define KPIs for a plywood producer 3 plants Wood supplies done by independent suppliers Sales done via wholesalers
  85. 85. 85 Now lets’ look at drivers and pick the best KPIs # sold Unit Gross Margin Cost of sales & marketing New products Added value products # of m3 sold Gross Margin per piece sold Cost of sales & marketing as % of Sales % of sales generated by new products % of sales generated by added value products % Utilization of production capacity % Gross Margin % Net Margin % of Net Margin generated by added value products Average price sold % Discount given to retail chains % of Net Margin generated by new products Pipeline # of months for which we have sold the production # of m3 booked for the next months
  86. 86. 86 Now lets’ look at drivers and pick the best KPIs Cost position level Cost position to sales % increase in cost level vs last year / previous period % increase in cost level to % increase in sales Working capital Level Inventory level in Days of Sales Receivables level in Day of Sales Payables in Days of Production Profitability % Gross Margin % Net Margin % EBITDA Cash Generation EBITDA to debt ratio Operational cash flow to EBITDA Dead weight stock as % of all inventory stock Dead weight stock as % of sales Capex to EBITDA
  87. 87. 87 KPIs for an e-commerce – Problem
  88. 88. 88 Imagine that you have to define KPIs for a e-commerce player selling mainly fashion products 3 e-commerce stores 6 markets No physical stores
  89. 89. 89 Drivers for e–commerce
  90. 90. 90 The e-commerce business model is driven by some basic KPIs # Transactions Average Value Transaction Total revenues Selling, General & Administrative costs x EBITDA from e- commerce Average Value Transaction of basic purchase Average Value Transaction of additional purchase # of Visit % Conversion Cost of Acquiring Traffic Logistics costs # of delivered parcels Cost per 1 parcels + x x Others + # of paid visits Cost per 1000 visits x % Gross Margin Gross Margin generated by e-commerce x - People in the Head - office & Development
  91. 91. 91 KPIs for an e-commerce – Solution
  92. 92. 92 Imagine that you have to define KPIs for a e-commerce player selling mainly fashion products 3 e-commerce stores 6 markets No physical stores
  93. 93. 93 KPIs for Management Consultants and Business Analysts $190 $19 For more details and content check my online course where you can find case studies showing analyses along with detailed calculations in Excel Click here to check my course
  94. 94. 94 What is a good KPI?
  95. 95. 95 What is a good KPI – Introduction
  96. 96. 96 In this section we will talk about the following issues The definition of a good KPI Vanity Metrics SMART KPIs Alignement of KPIs Cascading KPIs Leading vs Lagging KPIs Input KPIs vs Output KPIs Proxy KPIs How to set the value for KPIs
  97. 97. 97 The definition of a good KPI
  98. 98. 98 A good KPIs has certain characteristics It’s not vanity metric It’s SMART Assigned to specific person or a team You use it to manage / motivate and take decisions KPIs are alligned in the organization with main business goals You report and analyze it on regular basis Influence your bonus The person knows the KPI and can influence it
  99. 99. 99 Vanity metrics
  100. 100. 100 Vanity metrics are extremely dangeours for your business  Metrics designed to be impressive yet not actionable or relevant to the goal of the business.  Can be easily manipulated  Don’t move your business into the right direction / you are wasting your effort on the wrong things Vanity metrics =
  101. 101. 101 Let’s have a look at 2 examples Vanity Metrics  # of followers Facebook page  # of total customers SaaS business Better Metrics  Engagemnet Level i.e. Counted as a sum of likes, comments, shares, other reaction  Engagement rate = Engagement level / # of followers  Net gained customers for a given period (# of customers gained - # of customer lost)  % Growth of net customers = Net gained customers / # of customers at the begining of the period
  102. 102. 102 SMART KPIs – Introduction
  103. 103. 103 As we said the KPIs have to be S.M.A.R.T. We will explain what it means in practice in the next lectures SMART goals How to apply SMART methodology to KPIs – general rules How to apply SMART methodology to KPIs – example
  104. 104. 104 Set SMART goals
  105. 105. 105 S M A R T Specific – target a specific area for improvement Measurable – it has to be quantifiable; you have to have a way of measuring it Assignable – it says who will do it Realistic – it can be delivered Time-related – it says when it has do be delivered / by which dates The SMAR formula translates to 5 rules you should use when defining the goals
  106. 106. 106 Goals for ordinary tasks Goals for skills  Avoid vague tasks  Always for projects set deliverables, dates and responsible persons  Merge the task with the goal on the to-do list and set the right pace to a achieve the goal within the defined time  Set goals for improving your skills  Set goals for learning new things  Set goals for making the repetitive things faster and better SMART goals should be set for the task but also for skills
  107. 107. 107 Imagine that you want to write a book. Let’s translate it into task with SMART goals Imagine that you want to write a book Define the size of the book and deadline Divided into small tasks Make the tasks SMART Set the pace and execute  200 pages  1 page = 800 characters  Time= 1 year  Write pages  Write 1 page every day  Measure every week completion rate against the target (1 page/day=7 pages/week)  If necessary act to keep the pace
  108. 108. 108 By comparing your results and benchmarks you can decide what to improve, work on Internal  Learn Spanish  Speed of typing Area Unit Current result  Level  words/ minute  0  40 n/a 39 External Intermediate 80  Sing-in the course  Listen to Spanish TV 30 minutes every day  Enroll into a on-line course  Devote 15 minutes every day to training Target  Intermediate in 2 years  Achieve 60 words/minute In 3 months Actions
  109. 109. 109 Map your skills, experience, skills and set goals where you want to be  Sales projects Experience  1 # of projects Current Target  4 Industry Current Target  Marketing projects  2  6  Supply chain projects  2  2  Production projects  3  3  HR projects  0  1  Excel Skills Lowest Level Highest level  Negotiation  English  Optimizing production  Setting up on-line marketing campaigns
  110. 110. 110 SMART KPIs – General definition
  111. 111. 111 S M A R T Specific – target a specific area for improvement Measurable – it has to be quantifiable; you have to have a way of measuring it Assignable – it says who will do it Realistic – it can be delivered Time-related – it says when it has do be delivered / by which dates As we previously said the SMART rule is not only great for goals setting but also for defining KPIs
  112. 112. 112 S M A R T  Specific – targets a specific area, is well defined (by some formula), we know what is the source of data for calculation and who will calculate it. We specify the units and dimensions of KPI  Measurable – it has to be quantifiable; you have to have a way of measuring it preferably described with a mathematical formula  Assignable – it says who is responsible for delivering the results that the KPI describes. This person / team can impact the level of KPIs – has the power and resources to do that  Realistic – it can be delivered  Relevant – it is linked to the main goals of the business  Time-related – it says for which period it is calculated, when it has do be calculated/ by which dates Let’s first modify a little bit the definition
  113. 113. 113 SMART KPIs – example
  114. 114. 114 S M A R T  Specific  Measurable  Assignable  Realistic Relevant  Time-related Let’s first modify a little bit the definition Churn Rate  Churn rate on revenues, calculated by Baremetrics using our financial data at the end of every month  Calculated in percentage in reference to the revenues from the previous period  Expressed in percentage (Net revenue from new customers+ Net additional revenue from current customers i.e. from upgrades – Net revenue lost due to the loss of customer) Net revenue from the previous period  Responsible for the level of the churn rate is the Growth Team that is responsible not only for acquisition but also retention  The main goal of the firm is the EBITDA that heavily depends on churn rate. The smaller the churn rate the bigger the EBITDA  The churn rate can be calculated automatically on daily basis
  115. 115. 115 Alignment of KPIs – Introduction
  116. 116. 116 Alignment is extremely important. Here we will discuss what it is  Alignment is arrangement in a straight line, or in correct relative positions  For business it means that the goals are connected in the proper manner and actions are coordinated  For a KPI it means that it is aligned with strategy / strategic goals. Such a KPI shows you whether you are closer to archiving those goals  KPIs should be also aligned between each other Alignment of KPIs =
  117. 117. 117 Let’s imagine that you wanted to check whether there is an alignment between business goals and KPIs given to board members Market Capitalization Operational Cash flow Low Debt Level
  118. 118. 118 Let’s see at KPIs for the board of Directors Sales Director 1 CEO Marketing Director 1 R&D Director 1 COO 1  Sales Value  Sales Value  Market Share  # of products introduced  Cost per unit  Market Capitalization
  119. 119. 119 Alignment of KPIs – Solution
  120. 120. 120 Just as reminder you were to check whether there is an alignment between business goals and KPIs given to board members Market Capitalization Operational Cash flow Low Debt Level
  121. 121. 121 Let’s see at KPIs for the board of Directors Sales Director 1 CEO Marketing Director 1 R&D Director 1 COO 1  Sales Value  Sales Value  Market Share  # of products introduced  Cost per unit  Market Capitalization
  122. 122. 122 Let’s see whether we can define more aligned KPIs for Board Members Sales Director 1 CEO Marketing Director 1 R&D Director 1 COO 1  EBITDA  % Gross Margin  Receivables in Days of Sales  Inventory in Days of Sales  EBITDA  Market Share  Brand Awareness  NPS on our brand  EBITDA created by new products (for the last 3 years)  % growth of sales on new products  EBITDA on products created in our own factories  Inventory in Days of Sales  Payables in Days of Production  % EBITDA  Market Capitalization  EBITDA  Debt to Equity  Operational Cash flow to EBITDA Market Capitalization Operational Cash flow Low Debt Level
  123. 123. 123 Cascading – Introduction
  124. 124. 124 When you look at the structure you have delegation of work and cascading of responsibility. In the same way you have to define KPIs Director CEO DirectorDirector Director Manager ManagerManager Manager Specialist SpecialistSpecialist Specialist KPI A Business Goal KPI CKPI B KPI D KPI B.1. KPI B.3KPI B.2. KPI B.4. KPI B.3.1. KPI B.3.3.KPI B.3.2. KPI B.3.4.
  125. 125. 125 Imagine now that you were to define the KPIs for the Operations department You have the KPIs for Board of directors You have to define the KPIs for Directors
  126. 126. 126 Previously we have defined the following KPIs for Board Members Sales Director 1 CEO Marketing Director 1 R&D Director 1 COO 1  EBITDA  % Gross Margin  Receivables in Days of Sales  Inventory in Days of Sales  EBITDA  Market Share  Brand Awareness  NPS on our brand  EBITDA created by new products (for the last 3 years)  % growth of sales on new products  EBITDA on products created in our own factories  Inventory in Days of Sales  Payables in Days of Production  % EBITDA  Market Capitalization  EBITDA  Debt to Equity  Operational Cash flow to EBITDA
  127. 127. 127 Now try to define KPIs for lower level directors Sales 1 CEO Marketing 1 R&D 1 COO 1 Production Director 1 Logistics Director 1 Purchasing Director 1 Production Employees 150 Maintenance Employees 50 Production Planning 7 Warehouse Employees 60 Coordination Center 8 Buyers 15 Purchasing Planning 7  EBITDA on products created in our own factories  Inventory in Days of Sales  Payables in Days of Production  % EBITDA  Market Capitalization  EBITDA  Debt to Equity  Operational Cash flow to EBITDA
  128. 128. 128 Cascading – Solution
  129. 129. 129 Just as a reminder you were to define the KPIs for the Operations department You have the KPIs for Board of directors You have to define the KPIs for Directors
  130. 130. 130 We were supposed to do it on the bases of KPIs for COO Sales 1 CEO Marketing 1 R&D 1 COO 1 Production Director 1 Logistics Director 1 Purchasing Director 1 Production Employees 150 Maintenance Employees 50 Production Planning 7 Warehouse Employees 60 Coordination Center 8 Buyers 15 Purchasing Planning 7  EBITDA on products created in our own factories  Inventory in Days of Sales  Payables in Days of Production  % EBITDA  Market Capitalization  EBITDA  Debt to Equity  Operational Cash flow to EBITDA
  131. 131. 131 Let’s see how the answer could look like CEO COO  EBITDA on products created in our own factories  Inventory in Days of Sales  Payables in Days of Production  % EBITDA  Market Capitalization  EBITDA  Debt to Equity  Operational Cash flow to EBITDA Production Director  EBITDA on products created the factory  Work in Progress in Days of Production  % of orders executed according to plan (right quality, right quantity, right time)  % EBITDA on factory production Logistics Director  % of orders delivered according to plan (right quality, right quantity, right time)  Cost of logistics & warehousing as % of Sales  Average lead time Purchasing Director  % EBITDA  Inventory of Raw Materials in Days of Production  Payables in Days of Production
  132. 132. 132 Leading vs Lagging KPIs
  133. 133. 133 Lagging KPIs Leading KPIs  Based on historical data  Uses early signs to estimate the direction of certain phenomena ahead of time When it comes to the ability to act upon KPIs we can divide them into 2 groups:  Can be exactly calculated  Only allows for rough estimation  Quite often you use so called proxy metrics / KPIs – you cannot measure something ahead of time so you look for things link to the main phenomena or causing / predicting the phenomena  If the KPIs is falling below the target you notice it only after some times – you react after the damage has been done  Leading KPIs enable you to “predict” potential future and act immediately – part of the damage can be reverted  Gives you warning and time to react
  134. 134. 134 Lagging KPIs Leading KPIs  Churn rate in SaaS – percentage of people not renewing their contract with us  Engagement Rate – how often he uses the SaaS, how many minutes he uses the product Let’s look at some examples  Money earned by the movie in the first month  Early screening results – it can be for example NPS of people who saw the movie during early screening or average rating give by them or probability of them going to see the movie for the second time  Money earned by a new product  Results from presale  Number of people that signed for the waiting list
  135. 135. 135 Input vs Output KPIs
  136. 136. 136 Input KPIsOutput KPIs  Measures the effort that drives the result / output Measures the output and does not take into account the effort. The output may be a result of random things outside of the control of the person responsible for the KPI You can divide KPIs also into 2 other groups: Output KPIs and Input KPIs  Since it measure effort it is more actionable. You know what to do  Gives you suggestion whether you should act or not but does not tell you in what way. You know that there is a problem but you don’t know how to solve it  Usually Leading KPI Lagging KPI
  137. 137. 137 Output KPIs Input KPIs  Sales achieved – how much specific person or team sold during specific period  # of customer approached – how many potential customer you have contacted  Pipeline value – the value of all potential contracts Let’s have a look at some examples  # of recruited consultants  # of CV gathered  # of meetings set up with potential candidates  # of books sold during first 3 months  # of reviews / blog posts / YouTube movies created on the book before the launch  # of interviews given  # of bloggers / reviewers / YouTubers / journalist contacted with the information about the book B2B sales Consulting Recruitment Successful launch of a book
  138. 138. 138 Proxy KPIs
  139. 139. 139 Proxy KPIs  Net Promoter Score (NPS) – you calculate what percentage of people where happy with the product (Promoters) and what percentage were not happy (Detractors). NPS = % of Promoters - % of Detractors  Average review on Yelp / Facebook Quite often you cannot measure something important. In such cases you have to look for Proxy KPI  Sales per 1 person from HQ in comparison with competition and previous periods  Overall Labor Efficiency (OLE) – measures what percentage of available time is spent on works  Place in a ranking of employers from your category  NPS from internal survey among employees  Turnover rate – % of people that left the job during the year  Retention level of “stars” Happiness of customers Efficiency of people in Head Quarter How good an employer you are
  140. 140. 140 How to set the value for KPIs
  141. 141. 141 There are 4 ways in which you can set the value for KPIs Plan Historical Data Internal Benchmark External Benchmark
  142. 142. 142 Let’s see how we can set KPIs using plans and historical data Total revenues from new stores (Plan) Average sales per 1 store – historical data or assumption # of new stores to be opened (Plan)÷
  143. 143. 143 Let’s see how we can set KPIs using plans and historical data Last Year sales – historical data 1+ % growth of the market size (Forecast) This Year sales (Plan) 1 - % sales cannibalized (Plan) 1+ % LFL growth (Plan) x
  144. 144. 144 You can also use internal benchmarks to set the value of KPIs. Below example of sales for different sales reps. 100 120 140 160 Jon Tom Peter Mike Current Sales Benchmark / Target Sales per 1 sales rep In thousands PLN
  145. 145. 145 You can also use internal benchmarks to set the value of KPIs. Below example of sales for different sales reps. 100 120 140 160 150 150 150 160 Jon Tom Peter Mike Current Sales Benchmark / Target Sales per 1 sales rep In thousands PLN
  146. 146. 146 You can also use external benchmarks to set the value of KPIs. Below example of sales for different sales reps. 2 000 2 200 1 400 1 600 3 000 2 500 1 100 1 500 2 800 Company A Company B Company C Our Company Company E Company F Company G Company H Company I Sales per 1 person in the Head Office In thousands PLN Average = 2 011 80% of Max = 2 400
  147. 147. 147 KPIs for Management Consultants and Business Analysts $190 $19 For more details and content check my online course where you can find case studies showing analyses along with detailed calculations in Excel Click here to check my course
  148. 148. 148 How to use KPIs to model the business in Excel
  149. 149. 149 How to use KPIs to model the business in Excel – Introduction
  150. 150. 150 It’s a good practice to model your business in Excel. For this you use the drivers and KPIs you have defined # transactions Average revenue per transaction Total revenuex % Fee of the marketplac e Average transaction value Total searches % conversion x x Total Costs Total margin - Rent People Cost of traffic Ratio of visitors to searches Average cost of 1 visit + x Development
  151. 151. 151 SaaS E-commerce Media site 2-sided market User Generated Content Mobile Applications Retail B2C Service B2B Service FMCG SMCG Commodity Since we have different KPIs for different business models also their model in Excel will look totally differently
  152. 152. 152 Overview of case studies you will be solving in this section
  153. 153. 153 In this section I will show you how to model the following business models using KPIs Restaurant Business Model E-commerce Business Model Consulting Business Model SaaS Business Model
  154. 154. 154 You can see movies for every model by clicking on one of the box YouTube movie showing Restaurant Business Model YouTube movie showing E-commerce Business Model YouTube movie showing Consulting Business Model YouTube movie showing Retail Business Model
  155. 155. 155 For every business model we will discuss the main drivers, KPIs, links between them and later on I will show you how to reflect it in Excel # transactions Average revenue per transaction Total revenuex % Fee of the marketplace Average transaction value Total searches % conversion x x Total Costs Total margin - Rent People Cost of traffic Ratio of visitors to searches Average cost of 1 visit + x Development
  156. 156. 156 KPIs Main challenges For the online models apart from the Excel model I will discuss Examples of businesses Logic flow of customers
  157. 157. 157 As said we will start with Restaurant business model that is a an example of a B2C business model. So we will first explain this general model Restaurant Business Model E-commerce Business Model Consulting Business Model SaaS Business Model
  158. 158. 158 Main challenges in B2C Services
  159. 159. 159 We can be talking about 3 different models here Services performed at specialized place no production involved Services performed at customer place Services performed at specialized place with some production
  160. 160. 160 Now let’s move on to 2nd group – services with some production Services performed at specialized place no production involved Services performed at customer place Services performed at specialized place with some production
  161. 161. 161 The 2nd type of services (restaurant chains) have to face the following challenges Location Minimizing and Managing Fixed Costs Optimizing Capex Seasonality of Demand Upsell and cross-sell Standardization of services Queue ManagementPrice Discrimination Capacity management People rotation and knowledge management Growing customer base despite infrequent purchases Utilization of people
  162. 162. 162 Restaurant model in Excel
  163. 163. 163 When you want to set up a restaurant you have to not only face the monthly recurring costs but also invest a huge amount of money into the place
  164. 164. 164 Have a look what you will spend your money on long before opening of the restaurant Purchase of the place FurnitureDesign Kitchen equipemt Domestic Appliances Computer, cash till, POS Uniforms for employees
  165. 165. 165 There are plenty of monthly costs that have to be paid every month Food and drinks Utilities (water, electricity, gas, waste) Stock Rental of the place Services i.e. book-keeping Cleaning costs Personel
  166. 166. 166 Remember that apart from current costs you usually froze a lot of cash in the stock
  167. 167. 167 Let’s have a look at the simple model  Number of meals per day  Number of days Restaurant # of transactions Revenues Gross Margin Net Margin Operating Profit  ATV - average  Cost of marketing  Franchising Fee  Other Variable costs  Fixed Costs  % Gross Margin  % Food ratio
  168. 168. 168 Before we go to Excel let’s talk about the logic we used to build the Excel model  Conversion rate to consumption at the restaurant  Conversion rate into takeaways Visits # of transactions Revenues Gross Margin Net Margin Operating Profit  ATV for both subgroups  Cost of marketing  Franchising Fee  Other Variable costs  Fixed Costs  % Gross Margin  % Food ratio
  169. 169. 169 Business model of B2C Services in Excel
  170. 170. 170 The retail business model is driven by some basic KPIs # Transactions Average Value Transaction Total store revenue Total store costs x Store EBITDA Average Value Transaction of basic purchase Average Value Transaction of additional purchase # of Visitors % Conversion Rent People # of People Average wages + x x Others + # of sq. m Fee per sq. m x % Gross Margin Gross Margin generated by the store x -
  171. 171. 171 Introduction to e-commerce
  172. 172. 172 In e-commerce you will have 3 types of players depending on their presence in off-line and their approach to both channels E-commerce Pure players Off-line players with separate on-line presence Multichannel /Omni players
  173. 173. 173 Customer behaviors has huge impact on the business model and on what the e-commerce should concentrate on  Less than 40% of the buyers will buy this year  Focus is on customer acquisition  Loyalty program are not good investment  70% of e-commerce businesses are in this model Acquisition mode Description of the business model Examples  E-commerce selling only 1 type of Slow Moving Consumer Goods (SMCG) bought infrequently i.e. vacuum cleaner, scuba diving, furniture  E-commerce for 1-time in the life event: strollers,  40%-60% of the buyers will buy this year  You have a nice mix of new and returning customers  Focus is on customer acquisition as well increasing the value of the customer (increased frequency and increased purchase per visit) Hybrid mode  E-commerce that sells SMCG with relatively big frequency of purchase(1.0-2.5 times a year ) i.e. shoes (Zappos)  More than 60% of the buyers will buy this year  Focus is on increasing the value of the customer (increased frequency and increased purchase per visit)  10% of businesses are in this model Loyalty mode  Very strong brands with high frequency of purchase (i.e. Zara, Amazon)  Marketplaces i.e. Udemy, Uber Source: Lean Analytics: Use Data to Build a Better Startup Faster; A. Croll, B. Yoskovitz
  174. 174. 174 Just to remind you some examples of well known e-commerce businesses Products sold On-line / Off-line situation  Virtually everything esp. books, toys, fashion Mode  Pure on-line player  Loyalty mode  Fashion  Multichannel player  Loyalty mode  Tickets for events  Pure on-line player  Acquisition mode  Groceries  Multichannel player  Hybrid mode  Razors and cosmetics for men  Pure on-line player  Loyalty mode  Fashion  Pure on-line player  Hybrid mode
  175. 175. 175 VISIT PAID DIRECT SEARCH To understand the logic of e-commerce business model have a look at the visualization of how it works RECO ENGINENAVIGATION BOUNCED NOT INTERESTED ABANDONED UNSATISFIED ONE-TIME BUYER UNSOCIAL BUYERCALL TO ACTION OPEN RATE SEARCH CART ADDITIONS CONVERSION LOGISTICS, DELAYS VIRALRETURNING CAC PageRank Bounce rate Sharing rate Abandonment, conversion rates Ratings, delivery issues Signups Mail/RSS/TwitterReturning rate Customer Lifetime Value Transaction size Emphasis on repurchase rate, frequency, click-through rate, lifetime value Emphasis on maximizing cart value, minimizing acquisition costs DELIVERY SHARINGENROLLMENT Source: Lean Analytics: Use Data to Build a Better Startup Faster; A. Croll, B. Yoskovitz
  176. 176. 176 Business model of e- commerce in Excel
  177. 177. 177 Before we go to Excel let’s talk about the logic we used to build the e-commerce Excel model  Conversion rate Visits # of transactions Revenues Gross Margin Net Margin Operating Profit  ATV  Cost of traffic  Cost of logistics  Transaction fees  Fixed Costs  % Gross Margin
  178. 178. 178 Introduction to B2B services business model
  179. 179. 179 Due to margins and integration with you we can divide the B2B services into 3 groups Professional service Other external servicesOutsourcing of your process  Lawyer  Auditors  Consultants  Marketers  Production Process  Maintenance Process  Book keeping and reporting  Shared Service Canters run by external companies  Logistics  IT  Measuring
  180. 180. 180 Main challenges in B2B Services
  181. 181. 181 Let’s have a look at the main challenges in B2B services Utilization of people People rotation and knowledge management Upsell and cross-sell Seasonality of Demand Optimizing Capex and Opex Automation Standardization of services Price Discrimination Capacity management Productization of services Growing new businesses using customer base Minimizing and Managing Fixed Costs
  182. 182. 182 Introduction to service companies
  183. 183. 183 Service companies in general are all about converting your workers time into money Man-hours
  184. 184. 184 There are some general rules that you should follow Measure man-hours Measure tasks Stay productive and efficient Make sure supply matches demand Forecast and create demand Manage supply ahead of time Make sure that margins are OK
  185. 185. 185 Business model of a service company in Excel
  186. 186. 186 The typical model of a service model can be presented using this logic  % Utilization# hours available # of billable hours Revenues Gross Margin Operational Profit Net Profit  Hourly fee  HQ costs Bonuses  Interest  % Gross Margin  Wages
  187. 187. 187 KPIs for Management Consultants and Business Analysts $190 $19 For more details and content check my online course where you can find case studies showing analyses along with detailed calculations in Excel Click here to check my course
  188. 188. 188 How to use KPIs to manage?
  189. 189. 189 How to use KPIs to manage– Introduction
  190. 190. 190 Management consultants are brutally efficient KPIs give you great basis to properly allocate your attention and money and get the best results from your business
  191. 191. 191 In this section I will show you how to manage a business using KPIs. Before moving to cases I will have to introduce 3 concepts Backward logic Benchmarks Comparison metrics
  192. 192. 192 Backward reasoning
  193. 193. 193 Imagine that you were supposed to say how much you have to spend to create a company that has revenue of $ 100 M dollar Imagine that you were supposed to say how much you have to spend to create a company that has revenue of $ 100 M dollar
  194. 194. 194 You could use for that the so called backward reasoning CC: Flickr; Cycle Track
  195. 195. 195 Imagine that you were supposed to say how much you have to spend to create a company that has revenue of $ 100 M dollar Total Costs $ 400 M Cost of 1 lead $ 2 K # of leads 200 K ÷ % Conversion 10% x # of customers 20 K Average revenue per customer $ 5 K Revenues $ 100 M x
  196. 196. 196 Benchmarks
  197. 197. 197
  198. 198. 198 Why you need benchmarks?
  199. 199. 199 There are 2 types of benchmarks Internal External  Based on previous execution  Extremely comparable  Very reliable  Detailed – can be put for each and every activity  Based on some external source (i.e. reports)  Not that easily comparable  They to be treated with caution  Only for chosen amount of activities  Can give you food for drastic improvements - by analyzing them you can find totally different method of working
  200. 200. 200 By comparing your results and benchmarks you can decide what to improve, work on Internal  Salary  Speed of typing  Speed of analyzing Excel Area Unit Current result  K USD  words/ minute  minute  5  40  15 4 39 10 External 7 80 12  Your salary went up in comparison with your previous one but you are still below the market  Your typing speed has improved slightly yet you are far below the speed achieved by others  You not only improved your speed of analyzing but also are better than others  Makes sense to teach others how to do it Conclusions
  201. 201. 201 Comparison metrics
  202. 202. 202 I recommend in comparing yourself to competition to use 5 dimensions Size Profitability Pace of growth Cash generation Debt level  Revenues, market share, quantity sold  % EBITDA, % EBIT, ROA  Growth of revenues, growth of quantity sold, opened new stores  Cash to EBITDA ratio, Cash position, Net Debt  Debt to EBITDA ratio
  203. 203. 203 Overview of case studies
  204. 204. 204 To show you how to manage a business using KPIs I will use 4 case studies How to decide how to 10x your business Increasing profitability – retail chain # of dishwasher and waitress in a restaurant How to increase production and decrease costs – commodity business
  205. 205. 205 To see the case studies check my online course. Below a link to it: KPIs for Management Consultants and Business Analysts $190 $19 Click here to check my course
  206. 206. 206 How to use KPIs to motivate?
  207. 207. 207 How to use KPIs to motivate – Introduction
  208. 208. 208 Management consultants are brutally efficient Managing people is much easier if you set them targets. The easiest way to do that is via well defined KPIs that are part of bonus / motivation system
  209. 209. 209 There are a few good reasons why using KPIs to motivate people makes sense KPIs gives you measurable target If you can impact the value of KPI, the target based on the KPI gives you clear guidance what to do You can compare different people / teams / business You can track the KPIs and the performance of the person over time You can link the KPIs to business goals and in this way give people impact on the business
  210. 210. 210 Where you should put KPIs to motivate people
  211. 211. 211 There are plenty of places in which you should put KPIs to motivate people Bonus / motivation system Rankings visible to everybody Online dashboard Offline dashboard Mention in written form i.e. weekly reports send to people Mention during meetings i.e. daily or weekly overview
  212. 212. 212 Overview of case studies you will be solving in this section
  213. 213. 213 In this section I will show you the following case studies regarding motivation system. For more details check my online course How to analyze motivation system of sales force Sales force motivation system in juice producer How bad KPIs in production can cause troubles Board of directors motivation system Click here to check my course
  214. 214. 214 How to analyze the motivation system of sales force – Introduction
  215. 215. 215 Motivation plan for sales people can be pretty complicated Region sales plan realization 80% Country plan realization 20% Sales plan realization 80% Qualitative assessment 20% Variable part 40%Fixed part 60% Salary
  216. 216. 216 Person A has the following motivation system. What kind of problems it may cause? Variable part 10%Fixed part 90% Salary
  217. 217. 217 Person B has the following motivation system. What kind of problems it may cause? Sales value plan realization 90% Qualitative assessment 10% Variable part 20%Fixed part 80% Salary  Sales rep can change the price of the product and give discounts
  218. 218. 218 Person C has the following motivation system. What kind of problems it may cause? Sales margin realization 80% Qualitative assessment 20% Variable part 20%Fixed part 80% Salary  All costs covered by the sales rep
  219. 219. 219 Person D has the following motivation system. What kind of problems it may cause? % of sales n/a Fixed part =2x Average salary n/a Salary
  220. 220. 220 How to analyze the motivation system of sales force – Solution
  221. 221. 221 If the Person A has the following motivation system you can have the following problems Variable part 10%Fixed part 90% Salary Problems that may occur  Variable part is too small  The sales rep will not be motivated to drive the sales and put additional effort
  222. 222. 222 If the Person B has the following motivation system you can have the following problems Sales value plan realization 90% Qualitative assessment 10% Variable part 20%Fixed part 80% Salary  Sales rep can change the price of the product and give discounts Problems that may occur  Majority of the variable part depends on sales value which is not preferable solution as this does not drive the margin creation  The sales rep has a control over the price and discounts so he will be tempted to increase discounts to get more sales. In this way he will hurt total margin
  223. 223. 223 If the Person C has the following motivation system you can have the following problems Sales margin realization 80% Qualitative assessment 20% Variable part 20%Fixed part 80% Salary  All costs covered by the sales rep Problems that may occur  In this example we have margins instead of sales value which is much better solution  However, all cost are covered by the sales rep which may lead the sale rep to minimize his expenditure rather than to maximize the margin for the company
  224. 224. 224 Person D has the following motivation system. What kind of problems it may cause? % of sales n/a Fixed part =2x Average salary n/a Salary Problems that may occur  The fixed part may be big enough for the sales rep not to care too much about the sales level  His variable part is just a percentage of sales . Due to this there is a great probability that he will not care about the margin  Moreover, there is no plan of sales / margin so he will work only as much as he needs to cover his expenses
  225. 225. 225 Juice producer – motivation system of sales force – Introduction
  226. 226. 226 We will now have a look at a company selling branded juice in Romania that has 2 type of sales force They sell via wholesalers to independent stores and retail chains Area Managers sell to wholesalers Sales reps sell to stores and retail chains
  227. 227. 227 We will now have a look at a company selling branded juice in Romania that has 2 type of sales force
  228. 228. 228 The area managers have the following motivation system Sales value plan realization - wholesale 70% Qualitative assessment 10% Variable part 40%Fixed part 60% Salary  You have to have at least 80% of plan realization to get any bonus Sales value plan realization - stores 20%
  229. 229. 229 The area managers has the following motivation system Sales value plan realization - stores 90% Qualitative assessment 10% Variable part 30%Fixed part 70% Salary  You have to have at least 80% of plan realization to get any bonus
  230. 230. 230 How can bad KPIs in production cause troubles – Problem
  231. 231. 231 The aim of the company is to maximize EBITDA Production is judged against 1 KPI – Production cost per unit Imagine that you are working for a ceramic tiles producer that wants you to tell them whether new motivation system for production is a good idea
  232. 232. 232 How can bad KPIs in production cause troubles – Solution
  233. 233. 233 The aim of the company is to maximize EBITDA Production is judged against 1 KPI – Production cost per unit Imagine that you are working for a ceramic tiles producer that wants you to tell them whether new motivation system for production is a good idea
  234. 234. 234 Below certain things that you might have noticed with regard to the proposed motivation system Low unit production costs has nothing to do with EBITDA You are incentivized to produce more rather than to produce the right things There is no incentive to produce difficult things There is no incentive to produce high margin products Cost may be cut by lowering the quality of the materials used You may create a big inventory of finished products You end-up producing easy things that maybe are not desired You are not incentivized to keep WIP and inventory low
  235. 235. 235 Board of directors motivation system – Problem
  236. 236. 236 Let’s imagine that you were asked to judge the motivation system created for Board Members of a cosmetics producer 3 Business Goals: market cap, cash flow, Low debt 5 Board Members The Supervisory Boards sets the KPIs & goals
  237. 237. 237 Let’s see at KPIs for the board of Directors Sales Director 1 CEO Marketing Director 1 R&D Director 1 COO 1  Sales Value  Sales Value  Market Share  # of products introduced  Cost per unit  Market Capitalization
  238. 238. 238 Board of directors motivation system – Solution
  239. 239. 239 Just as a reminder you were asked to judge the motivation system created for Board Members of a cosmetics producer 3 Business Goals: market cap, cash flow, Low debt 5 Board Members The Supervisory Boards sets the KPIs & goals
  240. 240. 240 Every board member had different KPIs in his motivation system Sales Director 1 CEO Marketing Director 1 R&D Director 1 COO 1  Sales Value  Sales Value  Market Share  # of products introduced  Cost per unit  Market Capitalization
  241. 241. 241 Below certain things that you might have noticed with regard to the proposed motivation system Hardly any alignment Some business goals not addressed Almost every board member is incentivized to destroy value KPIs are relatively vague There are hardly any long-term KPIs Board member treated as a separate entities
  242. 242. 242 Now let’s have a look in details what kind of troubles it may cause Sales Director 1 CEO Marketing Director 1 R&D Director 1 COO 1  Sales Value  Sales Value  Market Share  # of products introduced  Cost per unit  Market Capitalization Market Capitalization Operational Cash flow Low Debt Level
  243. 243. 243 KPIs for Management Consultants and Business Analysts $190 $19 For more details and content check my online course where you can find case studies showing analyses along with detailed calculations in Excel Click here to check my course
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  272. 272. 272 Management consultant productivity hacks How to be lazy and still get things done presentation Check also my other presentations
  273. 273. 273 Start and run consulting company A practical guide presentation Check also my other presentations
  274. 274. 274 How to open a successful restaurant A practical guide presentation Check also my other presentations
  275. 275. 275 On-line Business Models A practical guide presentation Check also my other presentations
  276. 276. 276 MVP – how to test your business idea without building the product A practical guide presentation Check also my other presentations

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