Key Performance Indicators (KPI’s)

See Also:
Flash Reports
Normalized Earnings
Continuous Accounting: The New Age of Accounting
Collection Effectiveness Index

Key Performance Indicators (KPIs) Definition

Key Performance Indicators (KPIs) are defined as the key drivers of economic activity for a company In essence, KPIs measure the productivity of an organization. By performing a key drivers analysis of the most important business activities that drive profit and cash flow you can then develop a set of key performance ideas. Included in your key drivers analysis should be a sensitivity analysis of your financial projections in order to identify the key financial drivers. The best way to manage and report KPIs is through the use of Flash Reports.

(Find out why KPI’s are important!)

Key Performance Indicators (KPIs) Metrics

Key performance metrics should include both financial and operational metrics, as well as, combinations of the two. Key performance measurement is as much an art as a science. The actual numbers themselves are not as important as the trends in the key performance measures. By combining financial measurements with operational performance measurements you can gauge the productivity of an organization.

Key Performance Indicators (KPIs) Calculation and Examples

KPIs measure productivity.  Productivity can be expressed as:

    Throughput    

Resource

Examples of throughput would include the following:

• lbs concrete poured
• widgets produced
• # of invoices or tickets written
• product shipped

Examples of resources would include the following:

• man hours
• # of full-time equivalent employees (FTE)
• cubic feet of warehouse space
• machine hours

So, in order to calculate productivity over a period (expressed as a KPI), we would take a measure of throughput such as widgets produced and divide it by a resource such as machine hours.  The resulting KPI would be widgets produced per machine hour.
Examples of key performance indicators (KPIs) would include the following:

• sales per employee
• # of invoices generated
• # of tickets written per sales employee
• #lbs shipped per invoice
• sales per invoice
• units produced per plant employee
• # of units returned

Key Performance Indicators (KPIs) Dashboard

KPI reporting should be done on a daily or weekly basis. Furthermore, you should prepare a key performance indicators dashboard on the shortest timeframe feasible. The KPI dashboard should be easy to prepare and not take more than thirty minutes to generate. If it does, then you are making the process too complicated. A template should be used to generate the key performance indicators. This template should enable the CFO to identify both positive and negative trends.