When I last posted about Annual Plans we were talking about Key Performance Indicators (KPIs) and Key Results Indicators (KRIs). I want to talk this week about making this plan a living document that works for you and your business. Going through the exercise can help, but nowhere near as much as using it on an ongoing basis to judge your performance.
When we talk about the Indicators, we are talking about things to measure in your business. The next step is to put these measurements in place with what is often called stop and go gauges. In this case 2 levels are assigned to the performance of each metric. There is a lower point between the Red (bad) and the Yellow (Danger). The higher point is between Yellow (Danger) and Green (Good). There are some binary metrics, but most of the time the 3 color levels are a more likely measurement.
So, let me use an simple example. We are going to measure the number of Sales appointment per month and use a number of 90 a month as our Green Goal. If we get 75 per month, we will call that gauge Yellow. Anything below 75 is Red. This is a typical KPI and might be found in many companies. The next part is to match the KPI with the monthly revenue total. Green in the Sales Call number should strongly correlate with Green in the Revenue KPI. There might be some delay (depending upon your Sales Cycle), but that is the mission of this style of measurement. Create a set of KPIs that generate the KRIs that you want in your business. Then measure both and make sure that it happens.
There are a couple of problems to diagnose with this setup. The first is whether your business can meet the KPIs that you have established. If you can’t then there needs to be another plan – something different put in place. If the KPIs do not lead to the KRIs that you want, then either you have the wrong KPIs, the levels are off, or the correlation is not as strong as thought.
All of these errors are likely to occur, especially the first time you use this strategy to build a business. In many ways, it is similar to the first time you do anything. You learn, adapt and grow. Over time you will build excellent measures and predictors of performance. And when you do, your business will move into a phase where you can grow in a controlled manner.
Have a great day!
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