KPI Development and Tracking The Proper Way

The ability of a business to make informed and strategic decisions relies on access to solid, data-backed insights. Without reliable and applicable metrics, even the best decision-maker is doing little more than making blind guesses. This is where Key Performance Indicators, or KPIs, come in.KPIs are critical to determine how well a business is operating and whether it’s on track to meet its strategic and financial goals. The right KPIs can provide vital information about a company’s performance and allow for course corrections or highlight abilities to capitalize on new opportunities. Keep reading for a look at what goes into creating effective, informative KPIs, including which tools to use and how to involve internal teams to make the most of the process.

What Goes Into Creating KPIs

You first need to know which metrics are the important ones. This will vary widely from business to business and may even change depending on the growth phase or revenue cycle the company is currently in. Knowing what truly matters to the health of the organization relies on understanding the business’s core objectives and long-term goals.Companies should begin by determining their “critical inch” priorities, those areas of the business that drive growth and revenue. From that vantage point, it’s important to decide on measurable outcomes that will indicate if the company is hitting those objectives.

Creating SMART KPIs

A common criterion used in evaluating KPIs is the SMART method: Specific, Measurable, Achievable, Relevant, and Time-bound. It’s a tried-and-tested framework that’s instrumental in developing KPIs that are clear, focused, and relevant to larger objectives.KPIs must be specific to be actionable. A generic goal to “improve quarterly sales” or “increase cashflows” isn’t actionable or measurable. A SMART KPI would be one that attaches a quantifiable outcome to expectations. Something like “increase new customer sales by 10% this quarter” is both actionable and measurable, with outcomes that are clear successes or failures.

Industry Specific SMART KPI examples

The Importance of Reliable KPI Data

A performance metric is useless if it’s based on inadequate or irrelevant data sources. To create effective KPIs, it’s critical to determine which data sets to use and which tools are needed to analyze them for effective and reliable tracking.An organization has to have robust and tested data collection systems that are both accurate and up-to-date. If a company doesn’t currently possess the technology they need to realistically track KPIs, it should consider investing in systems that will make these figures reliable and consistently accurate.

Team Involvement in KPI Development

The more eyes you have on a situation, the more information you have about it. Seeking other viewpoints and perspectives is an important part of the KPI tracking and development process. Encouraging team involvement can result in more effective and easily tracked KPIs, and can bring increased understanding to the metrics represented by these indicators.

Seeking Outside Expertise in Developing KPIs

Creating effective KPIs can be challenging, and growing enterprises may find themselves without the necessary knowledge in-house. Partnering with the right external agency can make all the difference in KPI development and tracking. At CFO Hub, we provide customized outsourced CFO, Controller, and a full suite of Accounting services tailored to fit the specific needs of every business we work with. To learn more about how CFO Hub can help drive your company’s success, contact us today.