Key Performance Indicators

1. Selecting Information

There is a multitude of internal and external factors affecting the performance of every business. The sheer volume of information available to management can be a distraction.

1.1 You need to focus on a handful of key indicators which:

• Reflect the performance and progress of your business.
• Are measurable.
• Can be compared to a standard, such as a budget or last year's figures.
• Can be acted upon.

1.2 Most indicators are used to monitor and control the profitability and cashflow of the business.

• The three key areas are sales (see 2), costs (see 3) and working capital (see 4).

1.3 Some indicators are used as part of a strategy to boost profitability and cashflow.

• These are the drivers of the business, and they can be used to powerful effect (see 5 and 6).

1.4 Compare the past, present and future.

• Figures for last year and last month provide hard facts and established patterns.
• Figures in budgets and forecasts help you to identify potential problems and opportunities early on.

1.5 Compare yourself with other businesses, especially competitors, if possible.