Measuring
“What gets measured gets done” – Peter Drucker
This is a great quote for business or life, if you want to achieve your objectives or improve performance. As the saying goes “If you can’t measure it, you can’t manage it”.
In business this means all areas from people, processes to performance. However in business it is important to identify the main ‘things’ that will ensure your business’ success. These are often called Key Performance Indicators – KPIs for those that wish to use 3 letter acronyms. I shy away from using so called management jargon as it is often pretentious, arrogant and only serves to complicate simple processes, ideas and concepts.
The identification of KPIs that drive the success of your business should not exceed 3 to 5 measures or benchmarks otherwise it becomes too complicated and difficult to maintain. KPIs need to be SMART :
- SPECIFIC – must be clear and concise so that everybody understands it
- MEASURABLE – must be based on performance or behaviour that can be measured objectively
- ACHEIVABLE – must be attainable and what is required
- REALISTIC – must be a goal that can be realistically achieved and should represent significant progress from the status quo
- TIMELY – a goal must have time line to be achieved (e.g. by a certain date)
If we use a transport business for example, a KPI could be the number of kilometres travelled per truck per week to ensure an acceptable return on investment. It could look something like this :
By 30th June, the average kilometres travelled per week must be 8,000 kilometres per week. Currently the average is 5,000 kilometres per week.
- SPECIFIC – 8,000 kilometres per week
- MEASURABLE – kilometres per week is measurable objectively on a weekly basis
- ACHEIVABLE – 8,000 kilometres per week is achievable if the truck works 2 shifts per day and/or 6 days per week
- REALISTIC – it is realistic and is greater than the status quo of 5,000 kilometres per week
- TIMELY – must be achieved by 30th June
By implementing this KPI, performance can be measured on a weekly basis and compared week by week. The weekly KPI can be used to implement a plan of action to achieve the required objectives.
In conclusion, using SMART indicators your business objectives can be achieved providing you act on the KPIs to ensure you meet the required objectives. With no objective measurement system in place and no management then the status quo will remain and more than likely performance will deteriorate. So determine the key drivers of your business, start measuring them so you can improve your business’ performance.
5-Dimensionz 
Hi David, Why do you think goal setting is so difficult for small business owners.
I believe that most owners are too busy working in the business and not on the business. In the current economic climate, business owners are under such pressure that they often feel overwhelmed. The immediate concern of staying in business over rides a long term view. Also many business owners do not have the support structure, skills or experience to set goals. This is not being critical as I admire any body who takes the risk and goes into business. Goal setting is part of business planning.
Good Morning David. I too would love to learn more about Goal Setting?
Goal setting is a critical part of life, not just business. As the saying goes ‘if you don’t know where you are going, any road will get you there’. Goal setting forms a critical part of your business plan. By setting goals, you can then set steps to meet your goals – this is where KPIs become so important, even for small businesses.
Setting realistic, measurable and achievable goals is important in business. Without goals how do you know where you are going? Of more importance, by having a goals and then achieving it will give you a great sense of satisfaction and achievement.
David whats your opinion on the Japanese style of business improvement known as Kaizen (making very small improvements daily for larger improvements over a longer period of time)? And how would you implement it in a small business?
My Blog is designed for owners and managers in SMEs (small to medium sized enterprises). Kaizen means ‘good change’ and was introduced in some large Japanese businesses after World War II based on Quality Improvement Systems. Successful implementation of Kaizen involves including the workers in the process and in large corporations it is highly systemised which includes statistical processes. This is probably beyond the means for SMEs, however the principles of ‘continuous improvement’ and involving employees in this process should be implemented. After all, what we did today will not be good enough for tomorrow in our competitive world. Change is inevitable and the challenge is to continue changing to remain in business.
Hi David, Do you recommend any particular business planning tools or templates? Would you use different tools for different businesses?
I do not use any particular planning tools, other than asking direct questions to the business owner in order to determine what are the key drivers of the business. By identifying these drivers, we can set about measuring them and improving performance. Having said that, there are generic measures that are relevant for most businesses, such as debtor days, stock turns and the like.
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Thank you Onita. Many businesses fail to measure their performance. If you don’t measure performance, how can it improve? It’s not difficult and there is a great sense of satisfaction when you see progress in reaching your goals.
I was recommended this website by my cousin. I am not positive whether this
put up is written by way of him as no one else recognize such specific
about my trouble. You are wonderful! Thank you!
Thank you. I hope it was of some assistance – often problems can be simplified by standing back and understanding where you are, and then where you need to go. Measuring is about knowing where you are in an objective sense, then seeking to improve as you now have goal posts so you know how you are progressing.
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