Critical success factors are your KPIs

Critical success factors are your KPIs

The best way to improve profit is to know what your ‘critical success factors’ (CSFs) are.

These are the key things that go on in your business – without them the business can’t operate or slows down. For example, if you run a service-based business, your CSFs are the people who provide the service.

Ask yourself, ‘What difference would it make to the following if these CSFs were compromised?’

  1. shareholders
  2. customers
  3. staff
  4. service development

If service staff are a CSF, what aspect of what they do is important?

  1. chargeable time
  2. quality of work
  3. downtime
  4. staff competence
  5. customer complaints/satisfaction

Let’s consider how we could measure the effectiveness of the five CSFs above.

Your ‘critical success factors’ are the key things that go on in your business – without them the business can’t operate or slows down.

Measuring the five CSFs

  1. Service staff chargeable time can be measured by having them fill in timesheets or use an app to report on time spent on jobs.
  2. Quality of work can be measured by:
  • on time completion of jobs
  • number of defects
  • service met with customer requirements
  1. Downtime can be measured by getting service staff to fill in timesheet for time not spent on chargeable work, e.g. admin, travel, other.
  2. Service staff competency can be measured by number of hours spent on training.
  3. Customer complaints/satisfaction can be measured by a survey or simple follow-up call to a customer to gauge their level of satisfaction with the job.

Driving versus measuring results

These measurements are sounding like key performance indicators (KPIs), aren’t they? In fact they are what is commonly known as ‘leading KPIs’, i.e. those that don’t measure results, but ‘drive’ results.

‘Lagging’ KPIs are those that ‘measure’ results, e.g. job profit, overall business profit, bank balance, outstanding customer payments etc.

How do we measure results?

If these CSFs can be measured with KPIs, the next question is how do we measure them?

We could employ someone to run around and ask questions, or gather information from spreadsheets or manual documents – not very efficient if we can replace their time with a system.

The answer is a ‘business performance management’ system, or ERP system, as they are known! The value of such a system is that you enter information into it once and it can be extracted in many ways and appear in many reports. For example, you get service staff to enter time spent on various activities and you can get the following information:

  • number of chargeable hours
  • number of hours spent fixing defects
  • actual labour hours versus budget for each job
  • lost time injury hours
  • number of meeting hours
  • number of training hours
  • number of travel hours
  • number of admin hours

By measuring these activities you get an insight into how much time is being spent on nonchargeable items by all service staff. This might give you information that convinces you to invest in:

  • training to minimise defects
  • processes and training to minimise injuries, i.e. WHS
  • better planning and management of meetings
  • better planning and management of travel or job scheduling
  • employing someone else to do admin work or ways to minimise it for service staff

Quantifying the benefit

You can quantify the potential benefit by multiplying the charge-out rate of each service-staff person by the number of hours saved on nonchargeable activities.

For example, if you employ 10 service staff and you could save say five hours a week and they get charged out at an average of $100 per hour, that could be an extra $5000 in potential sales per week or say $240,000 per annum (based on 48 weeks per annum)!

And that’s just the service delivery side of things! A good ‘business performance management’ system also enables you to measure marketing and sales, e.g. number of marketing leads from particular sources or quotes done versus jobs won. It enables you to efficiently send out regular marketing messages to clients and prospects.

Some other KPIs able to be measured:

  • number of jobs missing deadline
  • % jobs completed on time
  • % jobs with defects
  • cost of jobs running over budget
  • cost of jobs running past benchmark gross profit%

When you start to get this type of intelligence, the next step is to implement projects to improve them. Once you’ve done this you reap the rewards for the future, i.e. once you’ve trained someone to do something better they keep doing it that way and can teach others to do the same.

So the benefit is exponential.

Implementation

The key to reaping the benefits is to select the right system, implement the right KPIs, get staff on board, properly use the reports that come out and manage improvement projects – it’s all in the implementation!

CFO On-Call is happy to offer a FREE ‘KPI development session’ to help you determine the KPIs for your business, and advise on how you can manage and measure them to make a difference to your bottom line and business value.

Sue Hirst, Co-founder & Director, CFO On-Call