Key Performance Indicators

How do businesses measure success?  They utilize financial statements such as the income statement (sales – expenses = profit). That’s important information, but there are problems with focusing only on this data.

First, statements are “rear view.”  The data is historical, and nothing can change it.  Second, most employees cannot read statements, so they are not useful tools.  Finally, they do not deal with activities that go on in the business.  If we are to proactively manage financial performance, we must identify measurable activities that drive our financial performance, and get our employees focused on these.

We call these measures Key Performance Indicators, or KPIs.  Your leadership team needs to identify the appropriate KPIs for you.  Many companies focus on Lagging KPIs (rear view mirror), you need to focus the company on Leading KPIs (foresight viewing).

Over the next few posts we will share a few tips keep in mind regarding KPIs and list some of the KPIs identified in various industries over the years by Brad Hams in his book Ownership Thinking: How to End Entitlement and Create a Culture of Accountability, Purpose, and Profit.

Construction Industry:

  • Number of bids
  • Win rate on bids
  • Backlog (contracted work that is not yet underway)
  • Small-tool cost (small-tool shrinkage and damage can be significant in this industry)
  • Change Orders
  • Cost of disposal
  • Buyout percent
  • Number of safety accidents or violations
  • Worker’s compensation earned premium
  • Plus or minus days to schedule variance
  • Average number of items per punch list
  • Equipment utilization

KPI Tip #1:  “If you want to engage your employees in the financial performance of the company, using only financial statements is not enough.”

Until next time,

Perry Phillips, President

Ownership Thinking Canada Inc.

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