It’s summer 2021 and my whole house is caught up in Olympic Trial watching! It started with USA Swim Trials in Omaha as we proudly watched our local club team swimmers give it their all.
This weekend was women’s gymnastics. We all cuddled up comfortably on the couch as these amazing women tumbled across the floor, along the balance beam, from low bar to high bar, or up and over the vault. We watched the wobbles, the steps outside the line, and OMG we even watched as our beloved Simone fell from the beam. We not so secretly cheered on our favorites and waited to see how the judges would score them after each event.
In gymnastics, an athlete is scored based on the level of difficulty and the actual execution. The kids and I would try to guess the execution score based on what we saw and heard but we rarely got it right. The judges are definitely more trained in watching for wobbles than we are!
I’m not just talking about the Olympics because I love watching them. Just like the gymnasts, your business gets a score for difficulty and execution every month. Do you know what your scorecard shows? How trained are you at watching for business wobbles?
Scorecards and KPIs
I’m not making that word up; a scorecard is a legitimate and important tool to be used in your business growth strategy. A scorecard is a snapshot of the Company’s performance compared to its goals. If this sounds a bit like budgets, forecasts, and variance analysis you’re not wrong. They’re all intertwined.
- A budget quantifies your business goals in dollars and cents.
- A forecast shows how your historical and current financial results can be expected to trend in the future.
- A budget-to-actual analysis identifies the variances between where you wanted to be (budget) and where you actually are (financial results) at a specific point in time.
- A scorecard tracks your company’s key performance indicators (KPIs). It can be used to identify and achieve performance targets that perpetuate your business goals.
What’s a KPI? I did just throw that acronym out there in the title and again in those bullets. Let me back up and explain.
Remember when we identified revenue and expense drivers? If not check out the blog here. The actions you identified during that exercise, are an example of KPIs. A key performance indicator (KPI) is a measurable action being performed in the business to further progress towards key objectives. These are the line items on your scorecard.
Increase Your Execution Score
Your scorecard is similar to your budget-to-actual analysis but instead of monitoring financial numbers, you’re monitoring the action/performance that leads to the financial results you desire. A robust scorecard helps you analyze and act on variances in your budget-to-actual analysis in a way that keeps you on track to reach your goals. In brief, a scorecard helps you increase the execution score.
Your KPIs are quite literally the translation of your financial goals into action steps. By tracking the performance of these steps, we learn which actions work, don’t work, and how much action is needed to achieve the financial results you desire.
Understanding your KPIs and maintaining a scorecard takes time and/or money. However, it more than pays for itself in knowing how to efficiently and effectively increase your revenue or decrease your expenses. You are no longer doing what you’ve always done and hoping it’s sustainable. You aren’t throwing everything at the wall hoping something will stick. You waste less time, money, and resources by knowing exactly what and how much you need to do in order to maintain your profits and your paycheck.
Low Degree of Difficulty
Just like your budget, it’s easy to get carried away in the details. When identifying your KPIs and creating your company scorecard, I recommend sticking to 2-3 KPIs in each of the following areas of your business.
- Financial – How do you grow your company?
- Customer – How do you improve the way customers see you?
- Internal Process – How do you increase productivity and efficiency?
- Innovation, Growth, Capacity – How can you continue to improve and add value?
If you’re still not sure what actions move the needle in each of these areas, go through the revenue and expense drivers exercise with each question in mind. There will probably be some overlap. That’s expected. Each of these areas drives each other.
If your company is large enough to have a team over each of these areas (accounting, customer relations, operations, business development and/or personnel development aka human resources), I would recommend each team have their own scorecard with 3-5 actions they are responsible for.
Once you have your KPIs, plug them into a spreadsheet and track how often that action is performed each month. When you’re starting out (with your scorecard, not your business), it’s all about tracking and correlating the changes in performance to the changes in your business objectives and financial results. As you get familiar with the cause-and-effect relationship between your actions and your goals, you will be able to set realistic or even “stretch” goals with the confidence that you know exactly how to get there!
Stick the Landing
Don’t just read this and go back to business. Put the information into action. Identify your KPIs and start keeping track of them. Include them in your budget-to-actual analysis. Know your numbers (not just the financial ones) so you can grow your business!
If you don’t have time for all that, make time for a consult call and let me help you. You don’t have to figure out any of the DIY methods, I walk you step-by-step through this and more. We do the brainstorming and problem-solving together but I take care of all the numbers “work” so you don’t have to.