Refine Your Metrics Into Gold

Enjoy this series of shorts on Metrics from Jim.

To deliver the results you want, refine your metrics (KPIs) like you’d refine ore into gold. Your metrics must directly impact the most vital outcomes in your business; otherwise they are nothing more than an expensive toy, misdirecting your scarce resources.

SPEED BUMP: Worker actions are the prime driver of results, good or bad.

Your workers’ actions:

  • Are influenced by KPIs
  • Influence KPIs
  • Drive outcomes
Refine Your Metrics Into Gold

Since KPIs have a huge impact on worker behavior, it’s worth refining them. Here’s how:

  1. Use the top five outcomes of your business: customer satisfaction, quality, sales, margin, and expense.
  2. Profit is the result of the impact of each above.
  3. Choose one measure that has highest impact on each outcome.
  4. Measure daily if possible. If not, then weekly. (Hourly measures are best for focused process improvement, but not for not ongoing KPIs because of data flooding.)
  5. Reduce to three KPIs by finding measures that impact more than one outcome.
  6. Diagram the link of each KPI to each outcome.
  7. Confirm by discussion with all employees.

Below are example KPIs for each of the important outcomes noted in point 1 above.

Refine Your Metrics Into Gold

Table of KPI Impact

Once refined, KPIs are useless unless all employees (yes, ALL) know and understand them. The work that each employee does will impact at least one of your KPIs. If you doubt it, show an employee the list of KPIs, and ask them which is influenced by how they do their job.

SPEED BUMP: Invest as much in teaching KPIs as you do in developing them.

Soon after developing solid KPIs at a company where I worked, I met the production manager in the hall, looking up at the board reporting KPIs for yesterday and the week. Excited, I asked, “What do you think?” “I don’t know,” he said. “That’s for them” (pointing to the executive conference room). “It doesn’t affect me.” He was replaced within months, and the company went on to boost earnings significantly. (I had nothing to do with his replacement; it was already in the works.)

ACCELERANT: Who will you ask about their impact on KPIs?

A note on SPEED BUMPS: Use them to click quickly with an idea that can immediately be implemented in your life as a business leader. Think: “How can I use this today? or “Who can use this?”

Next up from Jim in this series on Metrics, Why Your KPIs Are Mush.

Identify your path to CFO success by taking our CFO Readiness Assessmentᵀᴹ.

Become a Member today and get 30% off on-demand courses, tools and coaching!

For the most up to date and relevant accounting, finance, treasury and leadership headlines all in one place subscribe to The Balanced Digest.

Follow us on Linkedin!