March 14, 2017
When organizations look at analyzing and optimizing a business process, establishing objectives, expected outcomes and projecting a return and investment (ROI) starts with an evaluation of the best way to measure performance and gauge success. While everyone can generally agree when there is a problem with a process and an opportunity to improve operations, agreeing on the best way to measure success is more elusive.
Keys to Defining KPIs
While defining key performance indicators (KPIs) may be evident for some transactional processes, choosing KPIs that are measurable and reflect a company’s strategic vision can be a real challenge.
Here are a few tips for defining KPIs for your process:
In theory, this all makes sense, but there are fundamental challenges that underlie each of these requirements. How often, for example, have you established a goal, only to find that a lack of accessible data meant that your KPIs were never really managed and validated? At the same time, a measurable KPI that doesn’t truly reflect strategic goals really isn’t a “key” to determining the impact of a process on the health of the organization.
A Good Starting Point
While there is no true standard for a KPI that is relevant to every organization, there are definitely some commonly-accepted metrics that reflect the financial health and operational efficiency of an organization.
These KPIs include:
- the amount immediately available cash
- OCF is the cash version of net income (net income is on an accrual basis which means it includes non-cash items like depreciation)
- measurements to show if the company can pay off short-term debt
- this is effectively the amount of time is takes to sell inventory and end up with cash in the bank
Within many organizations, departmental processes like accounts payable invoice processing can be measured by metrics like payment cycle time. Metrics like process cycle time are performance indicators, strictly speaking, but they have no correlation to the company’s strategic objectives and financial health. Improving AP processes CAN have an impact on key measurable like cash flow. THAT is how you differential a ‘performance indicator’ from a KEY performance indicator—something that has broader and deeper meaning to anyone who wishes to understand the health of the business as a whole.
Discussion: What KPIs are critical to your organization?
Join the discussion and tell us more about metrics that are relevant to your organization—and how you may have arrived on ways to measure and report those metrics.
Artsyl Technologies helps companies to optimize their business processes and manage operations according to KPIs by transforming unstructured data and documents into measurable, actionable data than inform and automate tasks like document handling, approval routing and transaction entry into ERP and other business systems. To learn more, contact your Artsyl Technologies representative.