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Key Performance Indicators
Key performance indicators are metrics used to help a business define and measure progress towards achieving its objectives or critical success factors. They are quantifiable measures that can be expressed in either financial or non-financial terms and reflect the nature of your business.
Examples of key performance indicators include:
- unit sales
- return on investment
- market share percentage
- product quality
Critical success factors are those areas of a business that must be achieved in order for the business to achieve its goals and objectives as set out in its Strategic Plan.
Examples of critical success factors include:
- decrease expenses by 10% by end of 2009
- reduce staff turnover by 20% by 2010
- introduce a new product i nto the market by May 2009
- improve unit sales by 500 units per year on a particular product by 2012
Financial objectives define what your business is to accomplish in terms of its finances. For example, to achieve sales of $75000 in the first six months, or to reduce the overdraft from $150000 to $100000 over the first 12 months. When developing your financial objectives, there are several important factors to consider.
Specific, measurable, achievable, realistic and time specific (SMART)
When setting objectives it is very important to ensure that your objectives are; specific, measurable, achievable, realistic and time specific, OR SMART for short. The "SMART" approach allows you to effectively manage your financial activities and importantly be able to determine how successful they have been and whether they have delivered the particular benefits sought.
The "SMART" approach is explained to illustrate how you address each area;
- Specific - are your objectives stated in a way that is precise about what you are hoping to achieve?
- Measurable - Can you quantify each objective, i.e. can you use a unit of measure such as market share in percentage or dollars or other to provide a way to check your level of success?
- Achievable - Are your objectives reasonable in terms of what you can actually achieve or are you setting your sights too high?
- Realistic - Do you have sufficient employees and resources to achieve the objectives you have set, if you don't then they are likely to be unrealistic?
- Time Specific - When are you hoping to achieve these objectives, you need to define a timing plan with target timing for each specific objective?