Monitoring the right vital signs has always been essential in informing key business decisions. The coronavirus pandemic hasn’t changed that, but many companies have changed what they see as a vital sign and how to measure it.
To address the continuing health and economic impacts of the pandemic, companies around the world have revised traditional key performance indicators (KPIs), added new ones and changed the way they prioritize their KPIs, said Tinashe Chirume, ACMA, CGMA, Accounting Manager at British Caribbean Insurance Co. in Jamaica.
“The virus has increased credit, liquidity and market risks, and key performance indicators now focus more on business survival, on agility,” said Chirume.
In 2021, he expects non-financial vital signs reflecting employee and customer demands to gain prominence. This includes, for example, KPIs measuring employee satisfaction, staff turnover, or an increase in customer calls because the services they are getting are not working well for them.
Revenue, profitability and growth will remain important, Chirume suggested. But the origin of the data for these traditional financial KPIs may change. New sources of revenue from digital channels and customer / customer concentrations have become crucial since the start of the pandemic.
Understand what and how to measure
Companies looking to monitor their performance can choose from a bewildering array of numbers and ratios.
Soliciting a company’s opinions on the most useful metrics to follow helps ensure collaboration and reduces the risk of manipulation to achieve goals, said Brian Head, FCMA, CGMA, CFO of Armor Communications, a company UK which provides encryption for secure digital communication.
“At all levels, people all need to buy into what’s being measured and why it’s useful,” Head said. “If you don’t, you will only have parts that don’t interest you, be it for empty talk, to find solutions or to play.”
Often times, companies know what they want to measure, but getting the data that gives them relevant metrics for that KPI can be difficult, said Danielle Supkis Cheek, CPA, director of business and accounting services company PKF Texas.
This is especially true for some of the non-financial vital signs that businesses are likely to start watching due to the pandemic, Chirume said. For example, companies have looked at net employee promoter scores, attrition and turnover rates, absenteeism, and employee uptake of HR programs to measure employee satisfaction, but it can be difficult to determine which data is the best.
The pandemic represents one of the most significant trade disruptions in recent memory, Cheek said. Determining the degree of pivotal occurrence in customer or back office issues can change the meaning of certain metrics or metrics.
Even minor operational changes, system improvements, and meeting key thresholds can indicate it’s time to re-evaluate the metrics you are tracking to make sure they are still aligned with where the business is. -she adds.
Companies that select the right KPIs to follow can see unrelated benefits and money savings, such as fighting fraud, she said.
As a consultant, Cheek goes through all the scenarios in which the data could potentially be manipulated before recommending metrics for a business, often preferring blended ratios such as those that compare operational and financial metrics.
The power of comparing financial data to operational data is that it generally can’t be manipulated in the same way by the same people, Cheek said. In addition, people understand quite easily how to interpret mixed ratios, as it can tie trades to dollars.
For example, a cash-strapped customer whose product had to be stored in tanks for various periods of time created a mixed ratio measuring the contribution margin per tank-day. The goal was to find the most effective cash generation strategy by tackling the limiting factor, namely reservoirs, she said. The operations team learned a lot about how to select which batches to manufacture in which order.
Metrics that rely on data from different parts of a business are much more difficult to distort, she said, adding that the cost of potential fraud and the ability to mitigate the risk of fraud through a program proactive data monitoring may justify additional personnel or technology costs associated with monitoring. and monitor those numbers.
To get the right KPIs, Cheek suggests teams:
- Prepare an inventory of all data sources, including unstructured data, to which they have access and take notes on the data structure and known quality.
- Interview key decision makers and potential users of metrics to see what types of issues they face, what they need to address, what various long or short term goals they have, and what worries them most about them. points where they lack insight.
- Talk to the people who are integral to creating the data. See how data is generated, learn about data dictionaries, and ask people what they think about data and what it means for the business. These data experts may have ideas on what should be incorporated into the KPIs.
- Pay attention to what is going on operationally in the production shops. Maybe there is a big pile of junk in a machine shop that usually has very little junk in the cost of goods sold.
- Hypothesize how certain metrics will answer unknown questions they were told about, how the metrics will relate to each other, and how they fluctuate over time.
- Start testing the theories, exploring the data, and refining the theories. Cheek said she enjoys using software such as Excel, Tableau, and / or Microsoft Power BI to visually explore her data.
- Gather preliminary ideas and communicate them informally or formally to key stakeholders to see if the information is relevant and provides timely information that can be used for decision making.
- Continuously reassess, adjust and improve the most relevant KPIs. They should never be set in stone.
A good place to start is to list the elements of a document retention and destruction policy. If they do not have one, they should provide their item list to the person responsible for establishing a records retention and destruction policy.
Formatting and data mining, including finding outliers, trend anomalies, etc., are usually the most time-consuming parts of implementing any type of KPI program from zero.
– Sophie hares is a freelance writer based in Mexico. Sabine Vollmer is a FM editor of the magazine. To comment on this article or to suggest an idea for another article, contact her at [email protected]