Business intelligence refers to software applications and technologies that are used to gather, provide access to and analyze data about a company’s business operations. Business intelligence systems can help companies
make better, more informed decisions by offering a more comprehensive knowledge of the factors affecting their business, such as metrics on sales, production and internal operations.
Business intelligence often uses key performance indicators (KPIs) to assess the present state of business and to prescribe a course of action. KPIs can offer valuable information for decision-making purposes, so it’s important to
be sure the right things are being measured.
Things to consider when determining KPIs
Definition. Defining the KPIs can be difficult. It’s imperative to know that performance should be measured and how to measure it. When determining your company’s KPIs, take into account these common measurements:
- Use metrics that will help you improve in performance. Choose indicators that will help your company improve. For example, when measuring customer satisfaction, good KPIs would include on-time delivery performance (achieve 98% delivery on-time to the customer requested or promised delivery date), service call occurrences (reduction in complaints associated with defective materials, shipping the wrong products, etc.) and order fulfillment rates (reduce the number of back-orders).
- Focus on the important details. Don’t measure too many things. See the totality of what matters. Don’t focus on the components of what matters. Consider items like sales margin analysis, order fulfillment rate, delivery performance and manufacturing efficiency.
- Consider the customer’s point of view. Don’t assume you know what’s important to the customers. Ask them. Pay attention to and measure call center complaints as noted above. Find out when the customers need the products. Track stock-outs to trace sales lost due to product unavailability.
- Stray away from old metrics. To make changes, you might need to change your measurements. Perhaps focusing on the “root cause” is more important. Like, reducing the number of suppliers. Quality suppliers provide quality products, and sourcing multiple products to one supplier will reduce freight costs and internal processing time. Both can provide significant cost savings to a company.
- Value employee input. It is crucial to have acceptance from the people being evaluated or the KPI won’t be used. Consider input from the employees whose roles are being measured. Sales reps could be measured on sales performance for quantity, price and profitability. Overtime reduction and lost time due to injuries are also common measurements.
Collection. Obtaining the necessary data can be a difficult task depending on the complexity of the organization and the number of operational systems that are in use. Indicators requiring manual intervention or supplemental information are often destined for failure. The same is true for indicators that are based on information derived from data entry that is not inherent/natural within a business process. Good, reliable data is best obtained when entry/creation of the data is made “easy” for the publisher. This information is ideally stored within a data warehouse or a shared database. For this reason, the creation of successful KPI’s requires a close working relationship between the business leaders and information technology.
Evaluation. Analyzing the data and applying the business rule requires full comprehension of the KPI definition. If the person evaluating the data lacks a clear understanding, the calculations may be incorrect. Organizations can be bogged down in arguing with the results instead of using the information to improve performance. For maximum effect, KPIs must be defined such that they are easily understood, easily generated and accurate.
Action. When designing KPIs, one must remember that the ultimate goal is to take action. The effort a company makes to collect and analyze critical business information is wasted if the data collected is “informational” or “trivial”. KPIs must be based on key events early in the business process and not the end result.
In a dynamic competitive business environment, management needs easy access to relevant information to make the best decisions for their company’s progress. This can be achieved by defining KPIs that allow you to drive results instead of measuring them. A functionality rich software system can support the process by facilitating the definition, extraction of data, calculation and update of KPIs and other important metrics.