JFP GROWTH TIPS FOR 2022 - NUMBER 3

By: Peter Tory 01/18/2022 Categories: News

Drive your Plan implementation with smart KPI’s

What is a smart KPI?

A KPI is a key performance indicator and as it says on the tin it is a key tool in your armoury for implementing your strategic plan. A SMART KPI is specific, measurable, attainable and time bound. If the right KPIs are identified they provide targets for teams and individuals to aim for.

What will they do for your business?

It is surprising how many SME’s do not use them and miss out on the benefits such an effective tool can bring. No SME is too small to reap these benefits.

Taken as a whole, provided they are intelligently selected and reported against regularly, they will track your progress in reaching the goals set out in your strategic plan and will enable you to take prompt remedial action to avoid falling behind the plan curve.

They should provide you with early signals of the train coming at you down the track. A good example of how KPIs can provide this was illustrated in the surge of loan defaults in the early 1990’s. Most bank loans contain covenants relating to interest and asset cover - in effect smart KPIs. In 1991, banks noticed that customers were starting to breach the covenants, while still managing to service interest and capital. The breaches should have alerted them that there were impending problems, but the banks chose to waive the breaches and the opportunity to reassess their borrowers’ financial prospects. By 1993 many customers were in serious payment default and in receivership by which point the opportunity to enforce remedial action (cost reduction, restructuring, etc) had passed. Nowadays banks pay closer attention to breaches of these covenants.

Smart KPI’s will provide both departments and individual employees with clear visibility of what is expected of them and align them with the Plan. They can be rolled into employment contracts and form a fundamental yardstick for employee performance reviews.

Finding and setting your Smart KPI’s

Once your plan has been completed, identifying the key drivers of the business is not rocket science. With the Plan to hand, management will be able to drill down from the overall corporate level to the departments and individuals and extract the key drivers – in many cases they can be counted on one hand.

In defining each driver, to make it SMART it must be:

  • Specific – i.e. clearly defined and not a nebulous concept
  • Measurable – there must be a metric that can be calculated
  • Time bound - there must be a definable period of calculation (e.g weekly, monthly, annual)

Attainable – there is no point setting unachievable targets which will only lead to

demotivation

Over time with practice, experience and evaluation the KPIs can be expanded or redefined.

Reporting performance

Measurement of performance against the established KPIs should form part of the monthly management reporting package at a high level and at department and individual level. This will identify issues and enable prompt corrective action to be taken.

If you would like to discover what other gaps you may, or may not, have in your business, take our complimentary Business Energiser Scorecard – you will find it very revealing! https://tinyurl.com/ycyjy3hh