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What Are KPIs and Why Bother?

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LACK OF RELIABLE FINANCIAL INFORMATION

This is the first in a multipart series about Key Performance Indicators, called KPIs that are an absolute must-have in every leader’s toolkit. 

KPIs are a numerical representation of what’s happening in the business. They measure outputs, i.e. “how we’re doing,” as well as inputs, i.e. “what we do that generates the outputs.” 

It may help you to think of your business as a profit-making production line made up of a series of stations or departments. Each department has its own internal production line with stations along the way, consuming inputs and generating outputs. 

As in any good production process, you measure inputs and outputs at each station to figure out how to increase flow and productivity one station at a time across the whole line.

KPIs report both high-level and low-level inputs and outputs.

High-level KPIs tell us if the business is doing well overall, or if it needs attention. Examples of what they measure might be total sales, new customers, widgets produced,  # of employees, number of complaints, inventory levels, etc.

Low-level KPIs let us see details inside the “production line” so we can make small adjustments to improve higher-level results. They give us details at the department level and below. Examples are: hours billed by week, labor utilization by service type, sales by sales person or product category, inventory turns by product, etc.   

Lastly, KPIs are measured in different timeframes. Low-level diagnostic KPIs tend to be measured very frequently, sometimes daily, often weekly. High-level KPIs are also measured weekly although sometimes monthly or even quarterly.  

I’ll talk more about KPIs in future posts but for now, just know that KPIs are absolutely essential for your business. You simply can’t win without them. So get started.  

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