In challenging economic times, an agile business can not only survive, but thrive. With so much of the business environment turned upside down by the pandemic, executives in every industry are scrambling to reimagine the plans they brought into 2020. As they make adjustments, business leaders should double check that their key performance indicators (KPIs) are appropriate for the times.
The wrong KPIs can send a business off course.
The right KPIs serve as valuable tools for measuring the health and trajectory of a business. Conversely, the wrong KPIs can paint an inaccurate picture, whether too rosy or too grim. Managers who fixate on an inappropriate KPI can end up making bad decisions.
What makes a KPI good? The answer depends on the company’s goals. A KPI should provide management with a way to verify that the business is moving toward a specific target. As much as possible, it should be grounded in objective facts—financial results or other concrete measurables. When tracked over time, a good KPI tells management where the company is today and where it is headed.
In today’s climate, most businesses are tracking KPIs chosen in the midst of a strong economy. For some firms, the reasons for following certain long-established KPIs have faded from memory: they’ve simply become a habit. Troubles come when management doesn’t recognize when a metric no longer tells enough of a story about the reality of the business.
Tailor KPIs to the current climate.
Remember that KPIs are only measuring tools. When a KPI goes sideways it can spark useful conversations, but it may not mean that panic is warranted. It’s important for managers to understand what each KPI means, so it can be correctly interpreted and, when appropriate, acted upon.
A business doesn’t necessarily need to stop tracking its measurables established during the good times. But choosing a few new ones in light of the new economic reality can shed light on the business from a meaningful new angle.
Every business needs to choose KPIs that are appropriate for its industry and goals. These are a few examples of KPIs that we are recommending to clients.
- AR days and sales outstanding: By tracking how many days outstanding invoices remain in accounts receivables a business can begin to address cash flow issues with targeted strategies.
- Days in AP: Applying a similar logic to expenses can help managers find ways to reduce expenses and measure the effectiveness of their approach.
- Revenue per employee: By measuring revenue against head count a business can develop a useful way to evaluate its staffing needs.
Whittaker & Company is here to guide you.
Confronted with today’s uncertainty, the business community needs to share ideas now more than ever. Are your KPIs doing enough for your business? At Whittaker & Company we’re committed to providing our community with resources for making better financial and business leadership decisions. How can we help you? Give us a call today.