KEY PERFORMANCE INDICATORS ( KPIs)




KPIs

The KPIs or the Key Performance Indicators should be defined for measuring the performance of a team or a division or the company against some benchmark  The benchmark can be the industry benchmark or the company's other location benchmark

How should we define KPIs

KPIS should be defined as a product or result of dividing two components of business elements and we should not make it too derivative as then the reason for non conformity with the benchmark may be sometimes compensating resulting in no benefit of measurement

All KPIs must be measured on same units . So for example all Financial KPIs must be measured as Million and not some as Million and some as Billion .

The KPIs must  have a range for Very Good , Good , Fair and Bad

Identify KPIs to use and Number of KPIs

There are hundreds of KPIs defined and we need to chose the most relevant ones to focus on depending on the stage that we are in , the industry and our financial condition and goal.

As a thumb rule no Dash Board should have more than 10 to 12 KPIs .

Now if we are defining KPIs for business it can be 10 to 12

and for each division it cannot be more than 5 to 7.


Some of the most common and powerful KPIs that are used are

 FINANCIAL

PROFIT & LOSS

Operating Margin : This gives us the margin that we make on product or service before any overheads . This dives us an idea that if we make a 10 % margin and and our overhead is Rs 1 cr we need to sell Rs 10 cr to break even .

Break Even Point : The revenue at which the company would be able to recover all its fixed costs and would be at NIL profit or loss

Net Profit or EBIDTA Margin : EBIDTA or Net Profit / Sales .

Overhead to Gross Margin Ratio : The ratio between Gross Margin and Overheads to see the Margin of Safety or Margin of Risk

Cash Burn Rate and  Time : The monthly cash loss and Time till the operations can run with the cash loss and the Money available.


BALANCE SHEET

Asset Turnover Ratio : This ratio is computed by diving the Turnover by Total Assets of the company.

Generally higher the ratio the company is operating better. In today's time when technology is changing the assets ( read machines productive every six months ) huge investments are not warranted in assets . If we look at some of the most successful businesses like Apple , Air Bnb , Uber etc they are Asset light models.

DSO : The amount of money outstanding with customers in terms of sales per day

Current Ratio : Ratio of Current Assets and Current Liabilities to see the Liquidity , it should at least be 1.33


OPERATING

Productivity

Defects per 100 or 1000

Manpower Available against Manpower Planned

Overtime

Break Down

Non Planned Maintenance

Sales

New Customers Added in Pipeline

Conversion from Pipeline to Actual Sales

Sales Person wise New Sale



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