It is that time again. Another financial year over, and a new one just begun. This is the time that many businesses set a budget for the coming financial year. But there is a key ingredient that should be used in all budgets in order for it to have the greatest chances of success and that is to have it supported by Key Performance Indicators or KPI’s.
‘If you can't measure it, you can’t manage it’
If you want your budget to be meaningful and for your organisation to be in a better position to actually meet that budget then it is imperative that there is some clear KPIs to help measure the performance. The first step in managing any performance is the ability to measure the performance and results. You need to be able to measure the results so that you understand them, which can lead to better control and eventually improvement of results.
KPI’s can add value to the budget process by providing a clear strategy that ties in with the overall business goals and aspirations longer term. In the short term they help individuals focus on what matters and helps identify the areas that require attention. KPI’s should also have a system in place to monitor progress and therefore provides continual opportunities to correct any off track behaviors or performance.
In an organisation where there is more than one person responsible for the delivery of the budget, having KPI’s provides a consistent way of holding people accountable for their part. If you give individuals KPI’s that relate to the budget it has to be in line with the overall budget goals and KPI’s to avoid any conflict in direction.
When selecting KPI’s it is important to ensure that they are relevant to the strategy of the organisation. They need to have a clear definition which is free of jargon. These KPI’s will often form part of an individual’s performance assessment so it needs to be very clear for that employee how they are going to achieve that goal, and it needs to be achievable.
When you are defining the KPI’s it is important to get well rounding input. Primary sources would include employees, managers, board, clients, customers and suppliers. Internal secondary sources include the Strategic development plan, the annual budget and the operational plan. Finally, you could invest in some external secondary sources such as a KPI consultant.
You need to set achievable, clear and relevant KPI’s that are properly aligned with your organisation goals. However, setting the goals is just the first part. Gaining employee buy in and ownership of those goals is instrumental in the achieving those KPI’s. It is also important to review performance and show how individuals and the organisation as a whole are performing against them. This should be done monthly, and for some goals weekly might be more appropriate. The more regularly you review the performance against the KPI’s the more responsive you can be if it is off track.
So this year, make sure that as part of your budget and forecasting process you include a process for KPI’s.
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