Virtually every business has its own set of key performance indicators that provide insights into how a company is operating. KPIs are important, to be sure, but rarely tell the full story of a firm’s health. “The most popular KPIs used today are typically not management tools,” says numbercrunch co-founder Susan Richards. “They are actually not focused on the key processes that drive business performance and therefore not great at uncovering underlying issues.” Process performance metrics (PPIs) examine how a business operates. Richards says PPI dashboards should be comprised of a variety of metrics covering four key areas: Efficiency, capacity, productivity and quality. Here’s a breakdown of what you need.
1. Efficiency indicators
These indicators highlight the relationship between the results achieved and the resources used. Efficiency indicators enable management to generate the best results using the least amount of resources. Balancing revenue growth with customer retention generates the best return on investment. An example of an efficiency indicator for a SaaS company is with the SaaS Quick Ratio, which divides new revenue by lost revenue to measure your growth. In simple terms, it involves dividing monthly recurring revenue from new and existing customers by the comparable revenues lost from customers reducing their orders or ceasing purchases altogether.
2. Capacity indicators
When it comes to production, there are almost always capacity constraints that a growing firm inevitably needs to address, with the correct inputs. “Nine women cannot make a baby in a month,” says Richards. “Leveraging technology can help increase capacity but not in all situations.” Capacity indicators can also trigger when to purchase new equipment or hire new employees.
3. Productivity indicators
When you establish your capacity, you also make certain assumptions about productivity. These indicators enable you to see how you are measuring up against your limits. “Startups are often initially fuelled by the passion of the founders, but as the business grows, one common complaint of entrepreneurs is that their hired employees do not produce the same volume of output as they do,” says Richards. “One way to confirm whether this is true is to ensure there are measures of productivity in place.”
4. Quality indicators
This measure enables you to see the relationship between qualified output and total output. “Tim Hortons is in the business of quickly getting customers through the drive-thru, but if customers discover they have the wrong order, the extra time spent fixing the order can really add up,” says Richards. “By introducing a PPI dashboard you’ll get better visibility into how to keep your KPI dashboard looking green.”
Process performance metrics will help you up your game when it comes to seeing your business performance in a whole new light. For more information, contact numbercrunch.