The key points on Key Performance Indicators

Robin Tidd wrote a very concise article in Accountancy Plus recently (see the December 2010 issue here) on the subject of key performance indicators (KPI) in a business. According to Tidd, while around 90% of Fortune 500 companies utilise tools like the Balanced Scorecard to report on KPI, 70% are not happy with their reports. Tidd, rightly points out that this is not a problem with the tools used – such as a Balanced Scorecard – but more likely the application of the tools. He makes a few key points which I summarise below.

1. Don’t mix up KPI with key reporting indicators.
The best example of this is profit, which is a result or outcome.
Of course these results are essential, but tell nothing about what
caused the result. For example, have profits increased due to
improved productivity or customer satisfaction.

2. Use maps of your organisations processes to help find the best KPI.

3. Be careful to look at all processes and not just departmental ones. This avoids choosing KPI which may be sub-optimal.

4. Compare KPI on a regular basis, keeping the reporting interval short. This allows for faster corrective action.

5. Use the KPI on the front-line on a regular and routine basis. This fosters continuous improvement in all processes.

You can read the full article here http://is.gd/jLEn2