How to use performance indicators

Checklist

1. 1 Focus on the areas which affect profitability and cashflow: sales, costs and working capital.
2. 2 Identify the key drivers which significantly affect performance; these might include factors which have a major influence on quality, customer satisfaction and costs.
3. 3 Monitor indicators which reflect your strategic goals. If you aim to expand your customer base, track the number of new enquiries.
4. 4 Look for indicators which are measurable, such as number of complaints - rather than qualitative assessments such as 'customer satisfaction'.
5. 5 Aim for direct indicators, but use indirect ones if necessary: for example absenteeism as an indicator of employee motivation.
6. 6 Look for indicators which can be targeted either by comparison with historical performance or by benchmarking them against other companies.
7. 7 Consider indicators which demonstrate efficiency. Monitor defect ratios, levels of production wastage, the conversion rate of new enquiries into sales, or delivery time.
8. 8 Focus on a small number of key indicators to monitor at board level; leave more detailed, subsidiary indicators to individual managers to monitor.
9. 9 Identify any external drivers - such as foreign exchange rates - which need monitoring but are beyond your control.
10. 10 Decide how frequently to monitor each indicator. Some figures - such as the cost of premises - might only be reviewed annually, while sales progress, cashflow and credit control should be reviewed weekly or even daily.
11. 11 Present the information in a way that demonstrates the trends and highlights the significant variations - using graphs or charts can be particularly effective.
12. 12 Dig deeper into areas where performance levels have changed unexpectedly; identify the reasons behind the change
13. 13 Take action.

Cardinal rules