KPI's and performance metrics have been used for years helping companies focus on goals and hold managers accountable. They are typically misused for a number of reasons.
They:
• Are not understood
• They are too complex
• They do not address strategy
For these reasons they are not effective.
Performance measures need to be carefully thought out - they need to drive profitability and strategy. They need to be simple, visible, and understood by the entire company.
Many companies don't address these correctly – most haven't thought them completely through - some companies have abstract measures that are not understood or can not be affected.
The key here is to look at the revenue areas and determine the simplest attributes of each category. Ensure the driving data is easy to obtain on a timely basis and someone owns the driver. People need to take full responsibility for their results. We make assumptions to develop targets for each driver and then measure actual performance. The assumptions need to be reviewed quarterly and adjusted based what we've learned over the previous quarter. This provides a powerful tool that drives results.
Thursday, September 24, 2009
It's Budget Season
The typical budgeting process used in today's smaller and midsized companies (all companies for that matter) is an exercise in futility. The process which should be extremely useful consumes significant company resources and has the potential to cause team friction limits business potential.
We should think in the terms of what is possible. Paint the picture - of what that possibility looks like. As in building a house - what the house looks like when it's done. They prepare the blueprint of the individual pieces that need to get done, by who, and when – with the objective to complete the house by end of the fiscal year.
We make assumptions along the way and as things change, we need to re-address those assumptions - quarterly, based on what we've learned along the way. The budgeting process becomes an operating plan that is constantly adjusted.
This now becomes a dynamic process and a powerful tool for strategic growth.
I like the rolling budget concept so as one quarter falls off, we add another quarter to the budget. Then the budget process is a continual process.
We should think in the terms of what is possible. Paint the picture - of what that possibility looks like. As in building a house - what the house looks like when it's done. They prepare the blueprint of the individual pieces that need to get done, by who, and when – with the objective to complete the house by end of the fiscal year.
We make assumptions along the way and as things change, we need to re-address those assumptions - quarterly, based on what we've learned along the way. The budgeting process becomes an operating plan that is constantly adjusted.
This now becomes a dynamic process and a powerful tool for strategic growth.
I like the rolling budget concept so as one quarter falls off, we add another quarter to the budget. Then the budget process is a continual process.
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