Making Key Performance Indicators Useful To The End User
Jan 12, 2016
A few days ago, I spoke with a business manager about a Company’s new accounting system and the information which could be derived from the system. In this specific case, the organization had spent quite a bit of time and money implementing a new system in hopes of providing management information that would significantly improve efficiencies and overall profitability. As a byproduct, the new system can now produce key performance indicators (KPIs) far more quickly and accurately than had been available in the past.
The purpose of our conversation was to determine what data users may want to measure. We talked about a variety of options, as well as report formats and frequency. We concluded the end user should ultimately decide what data should be presented, how frequently, and the format. Even though both the manager and myself may have been able to anticipate the needs, the most useful key performance indicators are those most recognizable by the end user.
I am currently working with another startup company on the same basic project. In this case, the owner of the business started without an accounting system or support, but has built a very successful business in a very short period of time based solely on client service and technical knowledge. The owner had little knowledge of the capabilities of his accounting system and therefore, had little input as to how it could be modified to better suit the needs of the company.
It was my job to suggest KPIs the business owner would find useful in this rapidly growing, highly profitable company. What I quickly realized was this owner had no fundamental insight into the meaning of balance sheet numbers and trends or income statement numbers and trends. Therefore, he had far greater difficulty understanding how KPIs could be managed to improve the overall operation of the company. In this instance, I believe sophisticated KPIs would be too much for the owner. Instead, we are going to begin with very simple KPIs with a plan to upgrade and modify the complexity as time goes on.
I am cautious of presenting this owner with a sophisticated array of data which is of little use in their day-to-day management and therefore might be quickly ignored or completely shut down. This is not to say the information is not useful or relevant, but since the owner is not up to speed with how such information could and should be used, it is better to be mindful of the data presented. My goal is to demonstrate useful information and how it can be manipulated or interpreted to improve operations and profitability. As I consistently present new and improved KPIs over time, I believe the owner will begin to realize the value.
I have concluded that KPIs have to be relevant, timely and understood by the end users to achieve improvements in operations and profitability. Providing managers with the information required to complete their job in an efficient manner will prove to strengthen the value of gathering and using KPI data.
Categories: Cost Accounting