As a real world example, I worked with a business
owner who paged through a monthly report that was about 400 pages long. The
owner would look at each account and try to find large decreases between their
current purchases and those in the past several months. He??™d flag those customers
and then have the salespeople check on the customers to determine if there was a
problem, and if so, the company would work on correcting that problem. Naturally,
this approach took quite a long time and the solution seemed simple enough. I
suggested a single page report, showing all customers whose purchases in the current
month had dropped by more than 20 percent over the average of their purchases in
the three previous months. The business owner thought for a moment and admitted
that, yes??”such a report would indeed be useful and save time.
This is an example of dollar sales being used when what the business owner
really wanted was the percentage growth in the account. Large drops would then be
readily identifiable. This new measure would work very well as a key performance
indicator, although in this case it would be more meaningful when looking at an
individual customer than the entire organization, but it would still work when
looking at the sum of all customers to know if overall orders were better or worse
than the previous three months.
Therefore, one strategy for identifying KPIs is to examine what people do with
the data they have. Looking at the data they get is simple enough, but what do
they actually do with it? Do the users enter the information into a spreadsheet and
perform some form or analysis? Do they calculate moving averages, lead and lag
times, marginal costs, turnover ratios, and more? If so, the analysis that the end users
perform is a good place to look for KPIs.
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