There are varying opinions on which KPIs a particular business must use, and this decision is a critical decision the management or a CFO usually makes. From experience, boards usually receive financial performance indicators even though the priority has been retaining the top talents in the business and improving the customer experience.
The challenge then is whether or not KPIs currently being measured in your business and are subsequently presented to the board are those that assess progress against stated priorities of the business.
One crucial factor to consider when choosing KPIs is that these KPIs are conditioned by the industry a business operates in up to a certain extent. To illustrate, if you belong to a retail company, you might want to measure customer satisfaction (CSAT), whereas if you are in the oil industry, you care very little about CSAT but care more about the value of new reserves.
It is not uncommon for management to look at the KPIs other businesses track and report, and somehow they feel compelled to report the same. KPIs must always be relevant to a particular business. It is management’s job to explain their choice of KPIs in the context of their chosen strategies and priorities and provide enough information on measurement methods. This is so consumers of the reports can compare where they feel it matters.
Is there a rule on How many KPIs?
Giving your report consumers several performance measures without fully explaining which ones matter to managing the business does not help strengthen transparency. Choosing KPIs that are relevant is unique to companies and strategies, making it impossible to give out a specific number of KPIs a business should have. That said, the best-in-class companies usually monitor between 4-10 KPIs.
Do you report KPIs on group level or segment level?
Finance management needs to consider how KPIs should be reported and why. Does it make sense to report on a group level, or is it more valuable if reported on a business segment level?
There are several instances where KPIs offer more value if reported separately for each business unit, especially if aggregating them decreases the use and relevance of the KPIs tracked.
Do you change KPIs over time?
Finance management needs to check whether the chosen KPIs remain relevant over time. Business priorities and strategies change over time, making it inappropriate to report KPIs chosen based on previous objectives. In the age of big data and as more information becomes available to management, reporting new KPIs that help paint a clearer picture of the business is important. The choice of reported KPIs must be flexible and dynamic, but the reasons, nature, and manner of calculating these KPIs must be explained.
How do you ensure reliability in KPIs?
There is a valid concern felt by finance management on the reliability of some information attached to the KPIs, especially that they are nowadays encouraged to go beyond traditional KPIs. Established KPIs usually are products of tried and tested systems and controls. Therefore, it is understandable that management wants KPIs’ nature to be clear. In this regard, a best practice is to explain clearly the limitations of data and any assumptions made. This way, whoever reads and uses the KPIs can decide the reliability or if adjustments need to be made. It is also important to note that many KPI report consumers are interested in the trend of a KPI.
Which KPIs matter across industries?
|Store portfolio changes||Exploration success rate||Customer penetration|
|Expected return on new branches||Refinery utilisation||Asset quality|
|Customer satisfaction||Refinery capacity||Capital adequacy|
|Like-for-like sales||Volume of proven and probable reserves||Assets under management|
|Sales per square metre||Reserve replacement costs||Loan loss|
Tracking KPIs with Performance Canvas Financials
How one business defines good reporting of KPIs may differ from another business definition. Regardless, keeping track of KPIs is one way of improving organizational performance.
KPIs may be financial or non-financial, traditional or non-traditional. Performance Canvas Financials, a subscription-based reporting, budgeting, consolidation, and KPI tracking solution, ensures that you can leverage technology in performing business-critical tasks such as preparation of financial statements, budgets, forecasts, and consolidation of company figures.
Performance Canvas Financials offers a multi-page dashboard that allows you to organize your KPIs in a clean, easy-to-understand manner where you can track both financial and non-financial data.
If you want to know more about how this complete FP&A technology works, visit www.performancecanvas.com or request a free online demo today.