Diagnostics & Performance: Operations & Opportunities (Part 4)

The Operations and Opportunities series will posted on Tuesdays Wednesdays, and Thursdays through the month of August 2011. A number of operational issues will be addressed in the blog. For more detail, depth or individual information and answers, please contact Soltys, Inc. Comments and questions are welcome. We will post answers and responses.
All machines including business machines have diagnostic tools and performance measurements built-in that allow companies to not only optimize performance but to identify potential issues before they are a problem. This is also true for business machines. We call these KPI’s or Key Performance Indicators. KPI’s measure the critical areas that will impact the business in the short term, near future and even valuation of the company.

In the simplest form, KPI’s analyze the numbers necessary to achieve business goals and the variance from norms and targets. We are accustomed to looking at current profit levels against goals which is one KPI but there are many gears or other KPI’s in the business machine that must turn and meet performance levels to meet and exceed bottom line objectives. It is easy to calculate the revenue and profit anticipated if we simply count deals but if closing dates creep, commission revenue is decreased in a post contract compromise or fall through rates for change, our projections have little value. If we were able to see all of these factors as they occur in a dashboard where we could also see the impact as elements change, we would be empowered to make better business decisions. This is the value of KPI’s. KPI reporting and management gives us real time views and information with comparatives and variance from objectives.

Basic KPIs are generally a part of the reports in most back office systems but often offer only a historical view, generally at the end of a period which limits the ability to be proactive and timely. These are also rarely give insight to process, opportunities and the people factors that can change your business results before anything hits accounting. Companies using CRM systems often have a better view of activities and opportunities but not often the human factor. The best systems are those that draw information from back office, front office (often CRM) and management data.

Each business type has KPI’s identified to specifically measure the operations that produce revenue, feed related businesses in the enterprise and drive future opportunities. These are critical in companies utilizing incented and performance base compensation at both production and management levels.

In the real estate brokerage industry and small business there are few if any systems available to do this automatically and produce the needed dashboard. A few franchisors through their consulting service teams produce Operations Reviews on a periodic basis. These are helpful tools but often measured in a time period long past. Significant market and economic changes like those experienced since 2005 – 2006 might have created benchmarks and averaged norms that if applied in the business 2007 to current would often set a path for missed goals and performance. There are a few franchisors with centralized accounting and reporting systems that can give a more current report with a macro focus but are not able to integrate KPI’s that would enable local and timely decisions easily.

Simple spreadsheets can be used to track the most important KPI’s with very little data input but will give a point-in-time and measurement against a like period view rather than real time. Better yet, a simple database which produce the report and eliminate some of the work in keeping spreadsheets current. This is much better than nothing and will be very helpful until software publishers for the industry support KPI reporting through integrated systems.

Soltys, Inc. utilizes KPI’s in analysis and consulting to real estate brokerages. If you would like more information on KPI management, we'd love to help. Watch for information about how to receive our KPI guide next week.