Having performance indicators can help improve virtually any facet of your business.
Determining the business area to be monitored and the type of indicator will vary by business type. For example in retailing, customer satisfaction may be gauged by repeat visits by customers, frequency that merchandise is returned and customer complaints. For airlines, customer satisfaction indicators might include lost luggage and on time departure and arrival statistics.
Key performance indicators should provide a gauge of success in achieving internal goals as well as comparing performance with industry averages or industry leaders. Having a comparison to the industry prevents managers from becoming myopic when measuring results.
Some companies produce key performance indicator reports monthly and distribute them with financial reports to managers and senior staff. By combining key performance indicators with financial outcomes a manager is able to get a clearer picture of what is working well and what needs attention.
For example, a financial report might show a profit level that is meeting expectations or that revenues are at expected levels. Viewing key performance indicator reports may show that product sales volumes are higher than expected and that labor costs are below expectations. Here a manager looking at just the financial reports would assume everything was operating in an acceptable range and that significant improvements couldn’t be made.
By analyzing non financial performance indicators such as products produced per labor hours used and revenue per product, a manager in the foregoing example might find that the products are being sold at lower than planned rates and employee productivity reduced labor costs enough to offset lower revenue per unit sold.
This might cause a manager to ask why the products were sold at lower than planned rates. Further study might find a problem with marketing efforts, sales staff or product quality. Follow up actions might result in solutions that would allow unit rates to increase while maintaining sales volume resulting in increased revenues and profits.
It is a good idea to have operational managers report on key performance indicators in their area of responsibility on a regular basis. Monthly reporting is preferred but such reports should be required at least quarterly. This disciplined approach to reporting on key performance indicators will train managers to fully understand the implications and relationships of the indicators to overall organizational performance.
Key performance indicators to be reported on might include the following:
1) Workforce performance Indicators
a. Payroll costs per full time employee equivalent,
b. Products produced per person hour,
c. Customers served per person hour,
d. Revenue per person hour,
e. Benefit costs per full time equivalent,
f. On the job injuries per month,
g. Employee payroll and benefit cost per product sold or customer served.
2) Production Division Indicators
a. Percentage of available machine time used,
b. Repair and maintenance hours as a percent of available machine time,
c. Material waste per unit produced,
d. Defective products per 1000 produced.
3) Financial Indicators
a. Days in accounts receivable,
b. Interest cost or discounts lost due to late payment,
c. Discounts received for early or timely payments,
d. Days of material in inventory,
e. Inventory turns per inventory payment cycle.
4) Customer Satisfaction Indicators
a. Customer product returns per 1000 products sold,
b. Customer Complaints per 1000 customers,
c. Customers served per person hour,
d. Number of out of stock reports per product line
5) Sales and Marketing Indicators
a. Revenue per customer,
b. Profit per customer
c. Market share
d. Sales per sales employee
e. Sales administration costs per customer,
f. Advertising costs per customer,
g. Advertising and marketing costs per product sold.
This list of indicators can be expanded or customized to meet specific business needs.
Using key performance indicator reporting on a regular basis will provide useful information for actions that will improve the overall performance of any organization.
Popular posts from this blog
When introducing a new product or service to the market a key, and often critical, consideration is the price for this offering. I have seen folks simply take the cost of production and use a percent mark up as a pricing model. This is the simplest model and it provides a good example for the need to consider other pricing model options. Here are 10 things to consider before setting a price for your product or service: · Mark up Based on Cost Vs Retail . In the opening paragraph I gave the example of a model being used that marked up a product by a percent over the cost. The cost used here is generally direct cost or labor and materials. If someone wants a 30% of the asking price to be the mark up, then using 30% of cost won’t provide the desired outcome. Simply put, it is the wrong math. If something costs $1 to make and it is marked up by 30% for a selling price of $1.30 then the profit of based on the asking price is 23.07%. To arrive at
Here is the third example of developing a marketing strategy project for a new product. This is a fictional company developed by a team of MBA students in my marketing strategy course at the University of Houston C.T. Bauer College of Business. Executive Summary Avenir is a forward thinking and progressive technology company seeking to positively impact the lives of our customers, collaborators, and shareholders through the creation of new technology. We were established in 2001 and are proud to employ 211 hardworking individuals at our Houston, TX headquarters. Avenir designs, markets and licenses the K-1 battery, a new kinetic powered battery that will enhance cellular telephone battery life. The K-1 battery will alleviate the need to constantly charge cellular phone batteries through electronic devices. Our new battery offers a significant leap forward in the world of portable electronic power to the cellular customer. Our collaborators will se
Here are some more thoughts on why newspapers may still be a wise investment and how they may find ways to develop a stable of print and digital products that complement each other. Virtually all newspapers have websites that look good and have great functionality. So why aren't they all producing acceptable amounts of profit? The question probably should be asked differently, "What do consumers and advertisers expect from newspapers?" Then ask, "What do they expect from the Internet?" The answers are different but there is overlap. The area of overlap is the area of opportunity for creating a business that is needed by consumers and advertisers and capable of creating value that translates into profits. To determine the real value of the website it is useful to measure the total advertiser dollars spent on a website only ad buy versus those being bundled with a newspaper or distribution ad buy. These stand-alone purchases might give so