Better Decision Making: Eliminate KPIs & Optimize Performance Reports
Recent studies reveal that executives receive an excessive amount of information every day, hindering their decision-making process. Discover how to choose the key metrics for your organization, fight back data overload and improve the quality of your information for decision making.
In today’s information era, it is not uncommon for executives to want to make the most out of the data they have available and measure everything. Therefore, they developed colorful charts, graphs and statistics on all the business data they can muster and then present this to the CEO during monthly reviews. It is not difficult to imagine how this can lead to losing focus of what really matters.
There are many companies that have, thus, forgotten that one of the foremost best practices is to focus on a limited number of key performance indicators (KPIs). In order to provide the most valuable information possible, these should be inherently linked to the organization’s objectives and strategy. Ideally, the company should strive to have an average of 1.5 key metrics per strategic objective.
Executives should keep in mind that there is a clear difference between KPIs and operational metrics (which, though important for the day-to-day operation of the firm, should not be taken into account when determining the company’s strategic plans of action). Therefore they should endeavor to purge their indicators, leaving only those essential for the company’s strategic direction.
Otherwise, it is likely that the company’s strategy execution will fail because, in becoming obsessed with the details, they fail to grasp the big picture; they aren’t able to see the forest for the trees. They waste valuable time and efforts designing, implementing and monitoring a whole array of (probably unfocused) action plans and initiatives rather than spending quality time on the key strategic areas that have the potential to create the greatest positive impact on the company’s future.
The Importance of Consistency
One of the most important characteristics monthly reports should have in order to offer maximum profit is consistency.
This means reaching a consensus about which key metrics matter the most for the business, when and how they are going to be measured and who is responsible for keeping track of and reporting each indicator’s performance.
That said, this information should be presented in a consistent format, allowing executives to quickly visualize its progress and trends, and compare it to the performance levels expected for each key metric. These thresholds should be agreed on ahead of time, so that when the information is available, the key metric can be color-coded green/yellow/red according its percentage of compliance with the plan.
Similarly, we recommend using simple visuals month-after-month so that the information may be viewed in context and trends can be easily identified over sustained time periods. That is to say, it is required for the key metrics to be consistent over an extended time frame, sufficient for them to generate valuable data for the company. Therefore, in being able to easily identify tendencies, underperforming key metrics and areas of opportunity, executives can determine the best courses of action.
Even if technology offers us many tools to process and deliver information (like Excel and Powerpoint), it is not advisable to use these as a unique source for information analysis. Rather, they can serve as complementary tools to a consistent and sensible performance management reporting system.
At TRISSA we offer cost-effective Balanced Scorecard software that allows our clients to successfully monitor and orchestrate their strategy, elaborate strategic reports and keep track of the company’s most vital information. We also provide our clients the expertise they need to help them clarify their strategy, translate it into operative terms, align their organization and establish an effective follow-up mechanism that will allow them to achieve greater results.
Author: Trissa Strategy Consulting
Source: Keyte, Clive. Intrafocus. October 2012. Website. August 2013.