Laptop and monitor displaying dashboards

Creating and operationalizing key performance indicators

April 12, 2021

Creating and operationalizing key performance indicators

Synopsis
3 Minute Read

With key performance indicators, it’s not just what you track that matters — it’s just as critical to know what you’re measuring against and what you do with these insights.

Partner, Assurance & Accounting

Every company has heard of key performance indicators (KPIs). These basic metrics — which may be qualitative or quantitative and include anything from bottom line revenue to customer acquisition costs — deliver a straightforward explanation of how efficiently and effectively the business is running across various domains and points in time.

Most companies have and use KPIs, but it is surprising how often they paint an incomplete picture at best, or an inaccurate one at worst. This is troublesome since targeting, tracking, and operationalizing decisions from KPIs is one of the most consistent and sure-fire ways to positively benefit a company's performance.

Getting back to basics

Another way to think of a KPI is as a measure of how effectively a process has turned an input into an output. Usually, the simpler these measures are, the better. KPIs can focus on the output of a single machine or process, or ladder up to encompass a company’s entire output.

Some easy examples include:

  • Pieces, units, lines per labour hour
  • Cost per unit produced
  • Quality yield
  • Material yield
  • Etc.

The most direct way to measure something will usually produce the best results. However, it’s not generally finding things to measure where organizations struggle, but operationalizing their results.

From insight to action

KPIs are of little value unless and until someone takes responsibility for turning the insight into an action. A number or qualitative response in an enterprise resource planning (ERP) platform or on a clipboard produces no value if it isn’t influencing behaviour.

At a minimum, leaders must be comparing KPIs to accepted or desired standards which represent a best repeatable performance. The KPI should roll up to a percentage performance measurement against the standard. The difference between the standard (100 percent) and the KPI is called a variance — and the ability to identify a variance in a process is precisely what KPIs are for.

An important aside about KPIs exceeding 100 percent: While these so-called vanity metrics may look good to superiors and stakeholders, they offer little tangible value in improving outcomes or driving action in the business. Worse, they’re more likely to indicate inappropriate or inadequate standards, rather than exceptional performance.

Seeing problems, finding solutions

What we can measure, we can understand — and what we can understand, we can control. Variances indicate problems in a system, process, or human resource, and managers have two major roles in measuring and actioning KPIs: First is to ensure their average process variances are as close to zero as possible. Second is to identify the problem(s) and and take action to correct it/them when they occur. Over time — as managers address problems, more clearly define expectations, and eliminate inefficiencies — these root causes should decline, and variances should trend as close to zero as possible.

Contact Us

For help identifying and operationalizing standards and key performance indicators in your business, contact a member of our Southern Ontario team.

Matt Pirie, MBA
Manager, Consulting Services
905.617.2348
[email protected]

Hussam Malek, P.Eng, PMP, M.Eng, MBA
Partner, Consulting
416.515.3866
[email protected]

Ryan Magee
Partner, Private Enterprise
416.613.3120
[email protected]

Insights

  • October 25, 2021

    Meet 2021 NextSteps Program & Pitch Competition Winner Michael Collins, Founder & CEO of Periculum

    We’re certain this financial technology entrepreneur is going to be a global game-changer over the next decade. Get to know 2021 NextSteps winner Michael Collins before he becomes a household name.

  • Confidence

    October 25, 2021

    Set yourself up for success by managing your cashflow and risks on the farm

    Evaluating whether your risk management strategy was effective before typical end-of-year tax planning can help set you up for success next year by managing your cash flow.

  • Confidence

    October 25, 2021

    Tech Trends: No finance team? Financial automation can save the day – and time

    Give your finance team (or yourself) a break with automated bookkeeping that keeps your accounting current and opens more time to focus on the business of doing business.