A friend of mine recently asked for help with creating an operational Key Performance Indicators (KPIs) dashboard for his boss. It's for a business process where his boss wants to know whether or not that process is running smoothly.
The difference between small business owners and big business owners is how they run the business. Small business owners are part of the system by being a part of the daily operations. Big business owners and corporate leaders, on the other hand, rely on business intelligence (BI) so they hire people to do the work and manage and decide through KPI using a KPI dashboard.
I knew that data was necessary for managing my restaurant business. I was collecting data I can get my hands on and made misleading correlations. Because of my lack of clarity, I didn't know what I needed for the business. It's pretty much like guesswork, but it made me feel good.
Unfortunately, for my friend, his boss is at the stage I was at before — lost. My mistake cost me time, money and effort.
KPI is not a micromanagement tool
My friends boss needed KPI for the sake of micromanaging people and not used to manage the business. The reason why I say that is because there's only one good KPI for his needs, but his boss needs more than one.
You need to ask 2 questions before you build a KPI dashboard: what you need to know about your business and why. The keyword is KEY. If you have more than an adequate amount of KPI, then they are not KEY indicators. Having more than the necessary number of KPI is like having a security camera in every corner. It becomes unnecessary. It's like having 10 favorite flavors of ice cream — the favorite part becomes redundant.
Tools like a KPI dashboard is necessary for managing the business, but using it to micro-manage creates employee mistrust.
KPI is subjective — Analysis will be different person to person
Performance indicators are tailored to the needs of the business and for the person doing the analysis. Having someone to create a list of KPI for you is something like letting someone diet for you. It might work for them, but it's not you who is losing weight.
People at different positions — at different business stages — will have different sets of KPI. A simple example would be a burger griller and a business owner. The burger griller's KPI may include the number of burger patties left and the gas meter indicating if the gas tank is almost empty. The business owner's KPI may include the number of burgers sold and gas usage. The burger griller is using KPI that focuses on the task at hand while the owner focuses at the bigger picture.
KPI is used to monitor performance
Leaders need to know how well the business is doing, and they do that by monitoring multiple KPIs.
It's like driving a car. It might be time to refuel if you're going to take a long drive and your gas meter is at the quarter mark.
I had a ton (well, not literally, but I think you know what I mean) of disorganized Excel files from my restaurant business. Most are data I collected without knowing what to do with it. I knew I needed it, but I didn't know why and how to use it. I spent a lot of time collecting data that I could've used to build the business.
Business leaders — whether it be a small or a big company — need to learn more about business intelligence if they want to become efficient. You don't need to learn about Bayesian theory and other advanced statistics to become good business decisions. Learning the basic concepts is enough to create a better business environment.
A KPI dashboard is like a golfer's club. He may have various sets of clubs, but he can only be as good as what he knows. The clubs are his tools, but what's important are his skills and what's going on in his head — the mental and the emotional processes. Last Updated: 8/11/2018 - Updated for relevance
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