How businesses can overcome the challenges of ‘KPI overload’
By Rob Douglas, vice president, UKI and Nordics at Adaptive Insights
Many businesses today have an excess of KPIs (key performance indicators). If 10 are good, 20 must be better, and so on, or so the thinking often goes. But more KPIs doesn’t necessarily equate to better performance. For some department heads, too much data actually disengages them from the process of collaborating with the finance function.
This can cause problems for finance teams in terms of diluting the ‘KPI’ term. If every metric is deemed important enough to become a ‘KPI,’ then no indicator truly stands out or signals importance. Finance leaders not only have to pare back the overgrowing number of KPIs and get teams to focus on the ones that truly matter, but they also need to nurture engagement and trust with those metrics so that the right data can unlock insights.
Here are three ways to make effective use of KPIs:
1. Help people speak a common language
There is no question that different business units or departments may favour certain metrics over others. However, when each department head is left to define and label that metric in a silo, it becomes impossible to compare data across department boundaries. Rather than communicating about which KPIs are truly key, everyone is stuck speaking their own data dialect. A metrics catalogue can be a quick, efficient way to get everyone speaking the same language. It pulls together all financial and operational business metrics into one central database, as well as defining how each is measured and how often. To put it simply, a shared understanding of the KPIs is the first step to figuring out which ones matter most.
2. Build KPI trust
Anyone in finance can tell you that spreadsheets and spreadsheet-based presentations can be riddled with inaccuracies, including outdated data, typos, and redundancies. That is why such a large part of most finance teams’ time is spent verifying and double-checking data and formulas. However, spreadsheet peril is not a secret confined to the finance department. Indeed, budget managers know the spreadsheets that get circulated sometimes reflect inaccurate data. And the quickest way to erode trust with other departments is to share reports built on bad data, or ask them to enter budgets or submit plans into a system that is not accurate and up-to-date.
When people feel they cannot trust the accuracy and consistency of the KPIs they are tracking, they naturally begin to cast a wider net for validation and reassurance. To stop that net-casting, a single source of truth is non-negotiable. Cloud-based tools trump spreadsheets in this area, because they are updated in real time for all users, so managers know the KPIs they are looking at are accurate.
3. Connect KPIs to insights
No performance indicator can tell a story on its own. And an isolated metric is not going to spur strategic insights or questions; it is not going to prompt action or engagement. Instead, budget managers need to be able to see KPIs in context—how the indicator has been performing over time, what the forecast looks like for the near and distant future, which underlying data might be influencing the movement. But how can finance leaders help budget managers dig deeper without causing a deluge of data? The trick is an intuitive financial and operational dashboard that is easy to use.
The dashboard should draw the user into what is truly important. Additionally, budget managers should feel empowered to answer their own queries and run their own reports, which then frees finance to spend their time on analysis vs. reports. Ultimately, a dashboard that has a strong visual component makes it easy to see, at a glance, the financial context surrounding certain KPIs.
Selecting a few actionable KPIs is much more effective than many merely interesting performance indicators. But no matter the number, the goal of KPIs is to really know and understand business performance. It is with that insight that businesses can then make the right decisions to manage growth, enable agility, and ensure long-term sustainability.
This was posted in Bdaily's Members' News section by Adaptive Insights .