How to Measure What Matters
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The document discusses selecting key performance indicators (KPIs) for businesses. It explains that KPIs can be either leading or lagging. Leading KPIs measure behaviors that can improve business goals, like marketing activities. Lagging KPIs measure results, like sales figures, that show if goals are being achieved. The document recommends businesses identify their overall objectives and priority focus, then select a few leading KPIs that will most impact achieving objectives, and track lagging KPIs to check if behaviors achieved desired results. It provides examples of KPIs for different business functions and advises benchmarking metrics over time.
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How to Measure What Matters
- 1. We all know we should be keeping a close eye on our business performance. We're probably familiar with the term Key Performance Indicators or 'KPI's' But what should we be measuring? How do we strike the right balance between getting bogged down in measuring everything and not measuring enough? Kevin will help you to answer these questions and give you some guidance on what measures really matter in this webinar There is a link at the end of this deck to the associated blog and webinar recording.
- 2. Kevin Brent
- 3. “What gets measured gets done” But: “We can’t do everything – therefore we don’t want to measure everything!”
- 5. Lagging KPIs e.g. • Overall Lap Time • Sector Times • Corner Speeds • Entry • Mid • Exit
- 6. Leading KPIs e.g. • Brake Later • Later Apex • Full Throttle Earlier
- 8. • What’s our overall objective? • What are the key lagging KPIs to check our results? • What is our priority focus for the next period aligned with the overall objective? • What are the few leading KPIs that we think will have the most impact on this? • We gave our self reference points/ benchmarks • We reviewed the lagging KPIs to check whether our behaviours have led to the desired results. Key Lessons
- 9. • Not in isolation – competitors/ team mates? • Other factors? • Maintenance/ good practice
- 10. Leading Lagging GoalofKPI Type of KPI ImprovementMaintenance/GoodPractice Behaviours that will help us improve the business/ reach our goals – e.g. brake later and turn in later for key corners Results that will show whether or not we are doing well against our goals/ targets – e.g. Corner, sector and lap times (entry, apex and exit speeds) Behaviours that will keep the business running well - e.g carrying out post and pre-race vehicle checks Results that will show whether or not the business is running well – e.g. tyre pressures, fuel/ fluid levels, brake pads etc.
- 11. ® What’s Your Plan/ Goal?
- 12. ® Lead Generation Framework Lead Generation Process Behaviours ‘CookBook’ Budgets • How will I/ do I know if we have achieved these? • How do I know if we have had a good year? • How do I know if I’m going faster?
- 13. • What key things need to happen to achieve these? • Critical Paths
- 14. What’s Our Focus for the next Quarter?
- 15. Leading Lagging GoalofKPI Type of KPI ImprovementMaintenance/GoodPractice Behaviours that will help us improve the business/ reach our goals – e.g. brake later and turn in later for key corners Results that will show whether or not we are doing well against our goals/ targets – e.g. Corner, sector and lap times (entry, apex and exit speeds) Behaviours that will keep the business running well - e.g carrying out post and pre-race vehicle checks Results that will show whether or not the business is running well – e.g. tyre pressures, fuel/ fluid levels, brake pads etc.
- 16. Leading Lagging GoalofKPI Type of KPI ImprovementMaintenance/GoodPractice Behaviours that will help us improve the business/ reach our goals – e.g. brake later and turn in later for key corners Results that will show whether or not we are doing well against our goals/ targets – e.g. Corner, sector and lap times (entry, apex and exit speeds) Behaviours that will keep the business running well - e.g carrying out post and pre-race vehicle checks Results that will show whether or not the business is running well – e.g. tyre pressures, fuel/ fluid levels, brake pads etc.
- 17. • Finances • Marketing including Customer Advocacy • Sales • Operations – may include production/ delivery, IT, R&D • Team/ Human Resources • Leadership/ Strategy/ Head of Company • Stability
- 18. • Finances • Marketing including Customer Advocacy • Sales • Operations – may include production/ delivery, IT, R&D • Team/ Human Resources • Leadership/ Strategy/ Head of Company • Stability How would I know if they were doing the job well?
- 20. • Cash in the bank/ Change in cash position • Money owed to the business • Money the business owes – don’t forget VAT/ taxes
- 21. Leading Lagging GoalofKPI Type of KPI ImprovementMaintenance/GoodPractice Behaviours that will help us improve the business/ reach our goals – e.g. brake later and turn in later for key corners Results that will show whether or not we are doing well against our goals/ targets – e.g. Corner, sector and lap times (entry, apex and exit speeds) Behaviours that will keep the business running well - e.g carrying out post and pre-race vehicle checks Results that will show whether or not the business is running well – e.g. tyre pressures, fuel/ fluid levels, brake pads etc.
- 22. BizSmart aims to help business owners of small and medium sized businesses to create value and scale their businesses through sound practical business support by providing insight, Clarity combined with a real determination to help you succeed. You can access webinars and presentations like this and more besides through our SmartRoom service here You can read the associated blog and listen to a live recording of this presentation by clicking here You can read Kevin’s profile here
- 23. •Need a sounding board for your ideas? •Need to know what to prioritise? •Want someone to challenge your assumptions?
- 24. BizSmart – Where Smart people go to surround themselves with other Smart people, to gain business success.
Editor's Notes
- We all know we should be keeping a close eye on our business performance. We're probably familiar with the term Key Performance Indicators or 'KPI's' But what should we be measuring? How do we strike the right balance between getting bogged down in measuring everything and not measuring enough?
- We’ve also no doubt heard this: “What gets measured gets done” But we know we can’t do everything – therefore by definition we can’t/ don’t want to measure everything! So deep down we know we should be reviewing things regularly – so we know we should be making a habit of it. But to make something a habit, we have to get started somewhere – and that’s what I’m going to try and help with today.
- There are two types of performance indicators you need to think about – leading and lagging Lagging KPIs are results you measure looking back over the previous period – for example your annual accounts or monthly sales figures. They have already happened and we reporting and analysing to make sure we are in control and things don’t slip. Leading KPIs are more about behavioural indicators that we hope or know will lead to the results we want to see – they will effectively lead to our lagging KPIs.
- So if we are driving a car around a race track trying to get faster and faster, the lagging KPIs might be our lap times, sector times, corner speeds etc. Even if we can see these when we are out on track, they are still after we have driven the lap or a particular sector or corner. So they are lagging. The overall objective is a fast lap time and we can analyse and look for where we might be losing time – and perhaps identify a particular corner where we are losing most time. This helps us know where to look/ where to focus and we might conclude that we are braking to early and not taking the best line – perhaps we are clipping the apex too early leading to us running wide on the exit. So for the next session we might focus on this priority corner.
- So now we can set ourselves a couple of leading behavioural KPIs that should improve our time around this corner and therefore our overall lap time. We want to brake later to carry more speed – so we can pick a braking reference point and then gradually extend it lap after lap until we reach the limit. We want to apex later, to do this we want to start our turn in later. So again we can pick another reference point and extend it until we clip the apex where we think is right to give us maximum exit speed.
- So we can track the leading KPIs (where we brake and where we start our turn in) against our reference point or our benchmark. We can then look at our corner, sector and lap times and see the impact it has had on our lagging KPIs or our results. Once we are happy that we have nailed this corner, we might move onto the next most important corner and repeat the process – whilst maintaining the improvement for the previous corner.
- So there are a few lessons here that we can apply back to business: What’s our overall objective? In this case to improve our lap time/ go faster. We might set ourself a specific time – or to knock a certain amount off our time this season What are the key lagging KPIs to check our results? In this case overall lap time, sector times and individual corner times (perhaps apex speed and exit speed). Not we are not measuring everything – we have picked a handful of things What is our priority focus for the next period aligned with the overall objective? So what is our focus for the next session in this case – we chose a particular corner where we think we can have the most impact and we worked on this corner until we got it right What are the few leading KPIs that we think will have the most impact on this corner? We chose braking point and turning in point to clip the apex at the right point We gave ourself reference points – or benchmarks if you like. Something to aim for in terms of braking point and turning in point – that we can check if we did it right. And we then came back to the lagging KPIs (the sector/ lap times etc) to check whether our behaviours have led to the desired results.
- There’s a couple of other things worth pointing out here – firstly we are not doing this in isolation. Presumably we want our lap times to improve so that when it comes to qualifying for the race we will be higher up the grid and ultimately win more races or the championship. So knowing what our competitors are doing will help us to set a lap time objective. Knowing what our team mates are doing may help us to find out how they take a particular corner if we find we get stuck/ cant’ improve beyond a certain point – they might share their experiences and tips. Secondly we have only focused on one aspect – the driver. There are a whole host of other things that will influence lap times – the power of the engine, the performance of the brakes, the handling of the car etc etc – just like in a business. Thirdly, there are some things we need to measure that just keep the car running well – that maintain the performance and make sure we don’t have a disaster like running out of fuel half way round the lap. So we need some checks and balances such as fuel, water, tyre pressures and treads, brake pads etc etc – just like a business we have some basic checks we need to do.
- So how does this translate to business then? What we need are some leading and lagging KPIs for improvement (to achieve our plan of improving our lap time) and for maintenance (to make sure the car keeps running well). Leading Lagging Improve Behaviours that will help us improve the business/ reach our goals – e.g. brake later and turn in later for key corners Results that will show whether or not we are doing well against our goals/ targets – e.g. Corner, sector and lap times (entry, apex and exit speeds) Maintain Behaviours that will keep the business running well - e.g carrying out post and pre-race vehicle checks Results that will show whether or not the business is running well – e.g. tyre pressures at target level, fuel/ fluids at correct levels, brake pads in tolerance etc.
- Let’s take a look at improvement first - achieving our plan. So you need an overall time bound objective. If you haven’t done your planning, then you need to – simple as that. So you need a long term goal or purpose, you need to translate this to a 10-15 year stretch goal, you need to set a 3 year plan to get you on the way and you need to break this down to a one year plan with a handful of key objectives for the year that are along the way to your 3 year plan. If you need help doing this then we have a number of previous webinars that address this and we can send out links on request or you can find them on our app.
- So now we have a handful of objectives for this year. Ask yourself – how do I know if we have achieved these/ how do I know if we have had a good year? How do I know if I’m going faster? Some of these will be financial – turnover and profit, cash in the bank etc but not all. Some might be around people (perhaps having key positions filled) others might be around efficiency or operations etc. These become your targets or lagging KPIs for the year. If you know where you are now against these targets/ benchmarks, then they become your starting point and you can set yourself where you want to be month by month. Remember – there should only be a handful of these. These are the equivalent of our lap time and sector/ corner times and we can compare our actual results against our target/ benchmark to know if we are improving or not and by how much. So we know if we have had a good result – not just what the time was.
- If you ask yourself what are the handful of key things that need to happen in order to achieve these annual targets then you have identified some critical paths/ behaviours that give you some high level leading KPIs. This is not a full action plan – this should be done ideally also and is covered in another webinar – here we are after a few key behaviours that we can measure and keep track on over the year.
- So now we need to set a session objective/ focus – for example the specific corner. So take decide which of your annual objectives or critical paths you are going to have a real focus on for the next quarter – so what do we think is a really important focus for this quarter that will have a major impact on achieving our annual objectives? For sake of argument – it could be taking on a new employee to manage lead generation activities and getting them fully operational. You can now list out the key things that need to happen before the end of the quarter in order to make this happen. For this quarter, these are added to your leading KPIs as an additional/ more detailed focus. What is likely to happen is that as a result of doing this, you will make some changes/ implement something new that will carry on beyond the quarter. You can then take one or two key metrics from this and incorporate them in in your ongoing leading KPIs.
- So if we’ve done this well, we now have oversight of where we a trying to get to over the next year to achieve our longer term plans, and we have listed a few key leading and lagging KPIs to get us there and for us to keep track of whether we get there. So we have set our improvement KPIs Now we need to set our maintenance leading and lagging KPIs
- Now we need to set our maintenance leading and lagging KPIs Here we have a combination of things that are ‘best practice’/ what the books say we should look at and what we think are important specifically for our business. Some things will be more important in different types of business/ sectors – some perhaps unique to our business. So how do we go about setting those?
- A great place to start is listing out the key functions of any business – regardless of whether you have a person with the job title: Finances Marketing including Customer Advocacy Sales Operations – may include production/ delivery, IT, R&D Team/ Human Resources Leadership/ Strategy/ Head of Company Stability
- Now imagine you were employing someone new for each function – list down a maximum of 4 or 5 things you would expect them to be doing regularly that would tell you if they were doing a good job or not – these become leading ‘maintenance’ KPIs or behaviours. It might be that you want to have some sub functions within each of the above depending on your business – or you might have a particular process that drives your business that you wish to focus on – so include this. Then next to each function, list down 4 or 5 results that you want to see to know if that function was under control – these become your maintenance ‘lagging’ KPIs So for example let’s take customer advocacy. Leading behavioural KPIs might be Ensure all customers have at least an annual account review Ensure all customers asked for post project feedback Ensure all customers asked for referral/ recommendation Ensure all customer queries handled promptly The results or ‘lagging maintenance’ KPIs to go with this might be: Net promotor score/ customer feedback score Customer referrals/ recommendations Repeat business/ sales from existing customers Each of these can have a benchmark or target number put with them so that we can assess whether we are doing well or not.
- So that’s a logical approach to getting to what you should measure for your business. Some of us will find that fits with the way they think – and some of us will find that difficult to get started with just because of the way we tick. Either way the trick is get started so put an entry in your diary for a 2-3 hour meeting at the end or beginning of each month and then use the following agenda to structure the meeting – even if you are on your own and even if you haven’t actually set the KPIs yet – the process of going through the agenda will start you thinking about what you should be measuring.
- So that’s pretty much it. I’ve kept away in the main from giving you prescriptive KPIs to measure – I’ve given you a framework to help you to work out what is important for your business rather than measuring something because someone else tells you it is important. However, there is one area where there are some key things you need to keep an eye on whatever the size of your business – and that is your cash. So for financial your maintenance KPIs must include: Cash in the bank/ Change in cash position from previous month Money owed to the business (whether you do it in days payable or invoice amounts outstanding/ number of days late) but know how much money you are owed Money the business owes – don’t forget VAT/ taxes I would be surprised if you won’t want to also measure sales/ turnover, Gross Profit/ Margin and Net Profit/ Margin If you use a package like Xero then this will all be on the monthly summary at a press of a button (assuming you have input the information during the month!). If you don’t then you can still do this once a month – certainly the cash just by checking your bank account and all the transactions along with invoices raised and received. Do not wait for your accountant to do it for you – you should take responsibility for this. It is your cash at the end of the day!
- So there we go It can be a complex area – vital for your success particularly if you want to scale up your business Tried to give you a framework and structure to keep it simple I do have a sheet with suggested KPIs for the 7 areas/ Functions suggested. Email Caroline if you would like me to send it to you.