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- Measurement tools to use
- Examples of common measurements
Success often comes down to focus. Making sure you focus on the right things will ensure you're saving money and time. The most valuable tools to help you do this are Critical Success Factors and Key Performance Indicators.
Critical Success Factors (CSF) are strongly related to the strategic goals of the business. They are the essential areas of activity that should receive constant and careful attention from management and must be performed well if you are to achieve the business goals. You should set between four and eight CSF in order to be effective in implementing change. When starting to use CSF’s you should consider selecting the most meaningful and easiest to assess.
Key performance indicators (KPI) are the measurement tools used for each CSF. They will monitor the progress of achieving the CSF’s. To be effective and achievable, they should be quantifiable (able to be measured) and aligned to the CSF and business goals. By using KPI’s you will limit the amount of data or areas of focus to the ones that are truly important to business success.
In order to set CSF’s that will be effective to achieve business success, you should first review the overall business operations, the environment in which you operate – both internal and external and look at business performance including financial, operational and strategic. Spending time to do this will ensure that you identify the most important CSF’s for your business.
To keep your CSF’s easy to monitor and manage and in line with better business practice, consider setting one or two CSF’s covering the following areas:
- financial – What is the financial viability of the business? Will our strategy deliver financial benefits?
- customer – Are we satisfying the customer’s needs? How do our customer’s see us?
- internal business processes – What needs to be improved within the business to deliver to our customers and other stakeholders?
- learning and innovation - What needs to be done to improve and innovate to create value for our customers and stakeholders?
Creating your KPI’s
Setting KPI’s will vary between each business. If you do some research on KPI’s you will see there are literally thousands of measures that can be used in business.
What is important is that you:
- choose the KPI’s that mean something to your business
- they can be easily measured (you don’t want to have to create new reports or data sources each time you need to measure)
- they provide outcomes that will achieve your CSF’s.
The following give some examples of the four key areas of CSF’s that are outlined above.
Your financial measures should tell you: What is the financial viability of the business? Will our strategy deliver financial benefits?
Examples of financial CSFs and the matching KPIs:
- strong cashflow (CSF) = positive cashflow balance for each 12 month forecast or access to finance facility (KPIs)
- profitability growth (CSF) = sales growth of 2.5% per month, no change in gross margin or 1% reduction in expenses per month (KPIs).
Your customer measures should tell you: Are we satisfying the customer’s needs? How do our customers see us?
Examples of customer CSFs and the matching KPIs:
- customer retention (CSF) = number of repeat purchases per customer over six months or number of new customers over six months (KPIs)
- reliability (CSF) = number of customer returns or percentage of time on delivery (KPIs).
Internal Business Processes
Your internal business process measures should tell you: What needs to be improved within the business to deliver to our customers and other stakeholders?
Examples of internal business processes CSFs and the matching KPIs:
- environmental sustainability (CSF) = increase monthly office recycle of waste by two cartons or introduce a 'green’ policy for purchasing and working with other business partners (KPIs)
- optimise resource allocation (CSF) = increase employee sales as a percentage of net sales or reduce excess and aged stock by 20% by half year (KPIs).
Our Accounting and financial policies and procedures template is a good place to start to ensure you have best practice procedures in place.
Learning and innovation
Your learning and innovation measures should tell you: What needs to be done to continue to improve and innovate to create value for our customers and stakeholders?
Examples of learning and innovation CSFs and the matching KPIs:
- new product introduction (CSF) = number of new products compared to competition or increase stock turnover by 5% per month (KPIs)
- workforce training (CSF) = each employee to attend one training event yearly or 5% of workforce to achieve improved strategic skills for the financial year (KPIs).
Critical Success Factors and Key Performance Indicators when used well in business will ensure goals set are measured, that everyone in the business understands what the important aspects to the success of the business are and, most importantly, direct all business activity towards improving the overall performance of the business.