When you drive a car there a multitude of processes that must happen inside your vehicle to make sure you don’t breakdown such as proper compression, thermostat function, good fuel mixture, etc. It would of course be impossible to constantly monitor all of these functions. But we do pay attention to a few critical functions that if left out of tolerance will leave you on the side of the road and seriously damage the vehicle like fuel level, vehicle speed, oil level, and engine temperature. These critical indicators are positioned on our dashboard for constant monitoring.
Businesses also have an innumerable number of Performance Indicators (PI’s) and Results Indicators (RI’s) that can be associated with business operations. It’s important to know the distinction between the two. RI’s present a result and are not associated with a particular action of a person or team and do not suggest corrective action. They are often financial such as gross profit margin, or revenue. A Performance Indicator (PI) on the other hand is always non-financial and attributed to a single action by a person or team and immediate action can be taken to improve performance if necessary. Examples of performance indicators are the number of cold calls completed, current inventory levels, and the number of late deliveries made. As a business leader, you can’t just turn a screw to improve revenue (RI) but you can make a call to the warehouse to find out why there were so many late deliveries and take corrective action (PI).
Just like a vehicle, it’s important to select those few indicators critical to successful business operations and constantly monitor them even daily. These are called Key Results Indicators (KRI’s) and Key Performance Indicators (KPI’s). Some executives put their KPI and KRI data put into fancy dashboards but that’s not what’s important. I have seen large organizations effectively use raw data and simple spreadsheets for their purposes. What is more important is the process of consistently monitoring the right data and taking corrective action when those numbers fall out of tolerance.