The Power of KPI's: Operations & Opportunities (Part 7)

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.

The power of KPI’s (Key Performance Indicators) is not in the numbers. It is how you analyze, use and communicate the information. KPI’s are a decision making tool that cannot work without you.

Do you remember when they started putting nutritional information on food packages? We all knew that we should use the information when making grocery selections but, most likely, until either the scales or a medical professional brought it to our attention we were kind of happy with our ignorance. Once a problem arises we become more interested and might be more conscious but it usually takes more to make us proactive. It is the same in business.

My first recollection of KPI’s taught in real estate was in Operation Orbit with Dr. Dick McKenna and Ralph Williams. In those early days, the KPI’s they used were a few simple ones tracked by hand on charts. Many others also teach and use certain KPI’s but often the training does not become a part of operations after the class, but is used sporadically and primarily in areas where information resources such as MLS data deliver up reports and tracking tools. Until KPI’s become a part of the dashboard a business owner or broker sees every day when they go to work only a few will grasp and understand the power.

What kind of power do we have in using KPI information? Here is a thumbnail sketch in a number of categories. Utilizing the information brings fact based management which trumps band aid approaches every time.

• People – While I may basically know who is productive and who is not, especially in smaller companies, within a growth company I am dependent on what managers choose to tell me and post production numbers without KPI’s. These numbers also drive recruiting initiatives for quantity, diversification and managing business at risk. These also factor in the evaluation of management and staff effectiveness, impact and efficiencies. Using these KPI’s can make a difference in compensation and utilization, which quickly impact the bottom line.
• Production – There are many parts of production beyond the sales numbers generated when transactions are completed. These are in terms of quantifiable activities including listings taken, days on market, fall out rate, leads, lead conversion and utilization of key tools. A great example is that if I am proactively monitoring agent activities I will also have a better handle and anticipation of items such as agent receivables, where to place marketing emphasis and resources as well as training and management requirements.
• Facilities – In the post – Bricks, Sticks and Clicks, we talked about changes impacting the need for facilities that are market and customer use driven. KPI’s give the opportunity to take those factors and make great decisions which will potentially drive changes in utilization and return on dollars per square foot. KPI’s that are often monitored include use of desks, conference rooms, administrative staff and equipment as well as add on sales of core services generated directly attributed to the facility.
• Market and Environment – There is always 100% market share, but not all markets deliver the same return on investment and full diversification in the market is not always the best strategy. The tracking available through MLS systems is important and valuable, but the ability to make key decisions, position for opportunity and allocate resources comes from internal tracking of the KPI’s with external information. Demographics, political issues, transactions, pricing, mortgage factors and who is doing the business can dramatically change recruiting, marketing and sourcing of leads and opportunities. In many cases these also will be critical in looking for acquisitions.
• Money – KPI’s track not only profit, loss and expenses but also the value of potential opportunity, management and recruiting decisions and investment in tools, services, people and facilities. Imagine being able to see trends and key information that will impact the company six, nine and twelve months in the future. Decisions on long term commitments change and create real bottom line results.
• Integration of Core Services – If the company offers aligned core services, each customer and or client relationship has a greater opportunity to return dollars to the company and expand business. When the related KPI’s are analyzed, it is more than pennies that can be picked up by simple business changes that usually cost little, if any, extra dollars.

When I think back to the companies I have worked with, the divisor between those who utilize KPI’s and those that do not is measurable in many ways - profitability, market impact, growth, and ability to have an exit strategy because they have not only value but a system for business continuation in place. KPI’s and their utilization in making good decisions is power.