Will You Have Enough Fuel? Is The Oil Burning?

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Often in my discussions with clients there is some confusion as to how you identify KPIs and what are the most important ones to measure?

I was at a presentation last week where the presenter discussed KPIs – again there was very little framework on how to identify KPI – really just a grab bag of random KPIs.

I think in this world where there is an abundance of information and people are unsure what to look at, a framework is really important.

When working with clients, I like the boat analogy to explain KPIs.

When in your boat the objective is to get to your destination – sometimes your dream holiday destination (your vision!)

Along the way there are two types of the measures (KPIs) you need to monitor;

  • Do you have enough fuel? Is the oil the ok? If you are in trouble here you will not get to your destination no matter what.  In business terms, these are your operational KPIs. Examples of this, in a business context include sales, working capital, cashflow, debtor collection and daily production measures.
  • You also need to monitor your direction and the speed at which you are getting there.  This will tell you whether you are on track in terms of getting to your destination.  In business terms, these are your strategic KPIs.  These KPIs are going to be relevant to your selected strategies e.g. to grow into a new market.  In this example, there will be driver and resultant KPIs for this strategy. An example of a driver KPI will be particular sales activities e.g. presentations, visits in this new market.  An example of a resultant KPI will be sales targets achieved in this new market – these are the markers which will tell us if this strategy is on track.  With all KPIs, it is important to have a target line so we know we are on track.

I find this framework creates a succinct set of KPIs for a business to focus on.

If you have any questions regarding this article please contact Tony Monisse.

 

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OUR DIRECTORS

Chris Mandzufas

Chris Mandzufas

Chris has a diverse range of skills and experience as a result of providing accounting, taxation, advisory board and management consulting services to owners and directors of fast growing businesses.

Chris Smith

Chris Smith

Chris Smith has been a member of the Chartered Accountants Australia & New Zealand since 2006, a member of the Tax Institute of Australia since 2013, and a registered Tax Agent since 2018.

Tony Monisse

Tony Monisse

Tony’s key focus is the integration of strategy and financial management. To this end he has developed tools and process that facilitate this integration, including business modelling, target setting and rolling cash flow forecasts.

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