Creating the perfect SME KPI Dashboard is tricky

So, use these 6 steps to get the best out of your Business

KEY PERFORMANCE INDICATORS – exist to direct decisions and actions;
effective KPIs motivate profitable, and successful, business decisions.

It seems most people forget to think about the name itself ‘Key Performance Indicators’ when they are choosing KPIs – just picking stuff that is easy to measure. This article is about being able to create useful SME KPI Dashboards for running an effective and efficient business, however these principles will apply equally well to individual KPI Dashboards as to departmental KPI Dashboards.

What is a KPI?

A Key Performance Indicator is a measure of how well a fundamental part of the business is tracking towards its goals.

* Key = something that secures or controls access, important, essential, fundamental
* Performance = the execution or accomplishment of work
* Indicator = a measure, and record of variations
A KPIs’ specific purpose is to communicate a relevant summary of the current business situation to a particular person, or group; giving an indication of how a certain part of the enterprise is delivering its strategic commitments. Because it is an ‘Indicator’ it doesn’t of itself have to be all encompassing, or provide all the information about the business are, or reveal all about detailed execution. The purpose of a KPI is to highlight if, and when more investigation is needed; it doesn’t provide enough information to drive specific business decisions.

KPIs are high level, so are different from day-to-day management data, scorecards, etc – ie they are not every day ‘Performance Indicators’, Ratios, or Variance Analyses which are produced for a specific manager so they can analyse, manipulate and make tweaks to systems and processes.

Create a successful SME KPI Dashboard – follow these 6 simple steps:

1. Work out the audience and their objectives

KPIs are to be reviewed and shared – they are a Summary used as a way of keeping an eye on important areas and activities, but not used to run those areas and activities on a daily basis…Did I say “summary”?, it is worth repeating… The audience of KPIs is most likely up one level from the activities being reported on – so when producing your KPIs you need to ‘tier’ them. Thinking about the various levels of management, and who is reading the report is vital – then rethink your business information levels of detail to match the tiered pyramid structure of management.

Detail should be decreased as you move up that structure to avoid information overload and engender responsibility at the lower levels.
Remember: One manager’s critical Key Performance Indicator will be unimportant, including to too much detail, for another manager higher up the organisational tree.
Each audience will have different objectives to achieve, and these need to be teased out and clarified before the relevant KPIs can be applied – ideally you will come up with 2-3 objectives for each group you are reporting to. Spend some time understanding exactly what is critical to your audience’s success. Staff and departmental objectives will ideally will stated in a strong business strategy or plan, (it may help to think in terms of ‘what does this group or person need to do to get their bonus or be promoted?‘). However, if objectives are hard to tease out refer to Setting Business Objectives.

2. Be Clear about the Message

When creating your KPI Reports two messages are vital Key and Indicator.
Addressing the Key part – include only 6 to 8 KPIs on any one report – more than 8 begins to create a level of detail that undermines the primary relevance of the indicators.
Addressing the Indicator part – well-designed KPIs only deliver a message that will instigate one of two decisions; either ‘do nothing’ or ‘investigate’!
Recognise a KPI’s job is to tell you one of these three things:

Things are looking bad
Things are looking good
Things are OK

For a KPI to be useful they also need to enable easy decisions and instigate action in each of these scenarios.

Things are looking bad: Decision = need to investigate, Action = ask for more information
Things are looking good: Decision = need to investigate, Action = ask for more information
Things are on Track: Decision = no need to investigate, Action = none required

If your indicator is revealing more information than that is probably too low level, therefore not a KEY Performance indicator; it is not acting as an “Indicator” of performance but providing information about how and why the outcome happened.
So, taking into account the audience and understand what objectives they are trying to achieve will help you work out what messages your indicators need to be providing.
By the way, if the information on any report you have is not enabling decisions DITCH IT! – see Create useful reports – not more data…!!!

3. Definitely “Sweat the Detail”

Your KPI is an “indicator of execution or accomplishment of work”. To be able to make the decisions needed in B. above, the ground-rules of what is expected needs to be set. Being super, extra, specifically, clear about what work and what goals are Key is critical. The objectives need to be valid, so the KPIs being reported can be valid, and this is where lots of attention to the detail of the construction of your KPI objectives is vital. The best objectives, and by that I mean ones that are achieved and celebrated, all have 6 elements in common; to help you capture each of these elements we have designed a set of 6 questions:

Good Wording
One Clear Measure
Realistic Target
Time Frame
Tracking – this is the spot where your KPI, from a data point of view, comes into play

For more detail on this aspect of selection see: 6 Questions to ensure you word your KPIs effectively.

4. Balance it out

Think of the context the KPI is used in – for each objective your audience has listed ensure you have a spread of KPI focus, creating a balance and thus avoiding opportunistic behaviour.

Input KPIs – measure the quantity and sometimes quality of the RESOURCES PROVIDED for the objective. eg Number of FTEs available per project or Number of Training Hours per Employee per Year
Process KPIs – measure the quantity and sometimes quality of the ACTIVITIES REQUIRED to provide certain expected outputs. eg Number of On Time Deliveries per month or Percentage machine utilisation at capacity per week
Output KPIs – measure the quantity and sometimes quality of the GOODS/SERVICES CREATED by the use of the inputs. eg Number of Miles of Road Built per month, Number of Saleable Widgets completed daily
Impact KPIs – measure the quantity and sometimes quality of the RESULTS ACHIEVED through the provision of the goods and services eg Number of Customer referrals per month, or Number of goods returned due to faults per week

This does require 2-3 clearly defined and enunciated objectives (see back to point A.) to create a KPI report of 6-8 relevant indicators.

5. Use a variety of KPI types

Again, context of each KPI within the whole report is relevant – apart from KPI focus above, it is important to have range of KPI from following types:

Target KPIs – Most often these have a target / budget associated with them and action will happen if we fall above or below this budget figure. For example, if we have a “department costs” and we also have a budget figure every month then should we exceed this figure then it’s likely to raise some actions or discussion.
Directional KPIs – With many KPIs the number is much less important than the direction of travel. For example, “Number of days lost to staff sickness” [per month]. Here the exact number of days is not that useful as we can’t control this, however if the trend is rising we can investigate and take action accordingly.

Don’t forget that a mixture of types of KPIs helps ensure both qualitative and quantitative measures are selected.

6. Give it a Test

Once you think you are done, and have selected and fine-tuned your KPIs, give it a test! I have found there are three rules of thumb for what makes great measures:

1. A rate or ratio is better than an absolute or cumulative value.
2. It is comparative to other time periods, sites, or segments.
3. Make sure the metric name is less than 5 words and the calculation is easily described in under 10 words

For more detail on these three rules see this post on Rules of Thumb for effective KPIs
Also give all of your KPIs a trial run – making sure there is some lead-up time to check if everyone understands it as a team, if the outcomes are easily delivered or super stretch targets…. It can lead to disaster if you simply design, then implement, a KPI as a way to allocate bonuses without fully understanding if and how it can be “gamed” or how it will affect morale, or any other unforeseen outcomes.