This article was updated November 2020.
Less is more. It’s a concept most finance professionals embrace for everything from management oversight to data points on a presentation slide. Yet key performance indicators (KPIs) unleash an unquenchable thirst for more. If measuring three KPIs helps business, wouldn’t measuring 10 be even better? What about 20 or even 30? Not necessarily.
KPI overload can result in department heads so awash in data their eyes glaze over. They disengage from collaborating with the finance function, and data swamps can cause problems for the financial planning and analysis (FP&A) team, too. If every metric is important enough to earn the KPI label, then no indicator truly stands out or signals importance. The term is diluted, and indicators that should warrant extra attention get lost.
Tracking KPIs that actually drive growth is no small feat. Finance leaders must nurture engagement and trust the metrics so the right data can unlock insight and spur action. Here’s how to get started.
Speak a Common Language
Different business units or departments favor certain metrics over others. When a department head defines and labels that metric in a silo, it’s impossible to compare data across department boundaries. Departments have their own data dialect, which won’t necessarily communicate which KPIs are truly key.
A quick and efficient way to get everyone speaking the same language is a metrics catalog. It pulls together all financial and operational business metrics into one central database that defines how each is measured and how often. A shared understanding of KPIs is the first step to figuring out which ones matter most.
Build KPI Trust
Spreadsheets can be riddled with inaccuracies: old data, typos, or redundancies. That’s why FP&A teams spend such a large amount of time verifying and double-checking data and formulas. But spreadsheet peril isn’t confined to the finance department. The quickest way to erode trust with other departments is to share reports with bad information or ask them to submit budgets or plans into an outdated system.
When people feel they can’t trust the accuracy and consistency of the KPIs they’re tracking, they cast a wider net for validation and reassurance, which makes a single source of truth crucial. One solution that can help managers understand that KPIs are accurate is a cloud-based tool that’s updated in real time for all users.
Connect KPIs to Insights
No performance indicator can tell a story by itself. An isolated metric won’t spur strategic insights or questions nor prompt action or engagement. Clear communication is valuable, and priorities are often illustrated by what’s shown.
The goal is an intuitive, easy-to-use financial and operational dashboard. Consider that strong visual components make the financial context of certain KPIs easier to understand. The dashboard should draw the user toward what’s important—selecting a few actionable KPIs is more effective than merely listing all interesting performance indicators.
Budget managers should feel empowered to answer their own queries and run their own reports. KPIs should be viewed in context:
- Performance over time
- Short- and long-term forecasts
- Underlying data that influences movement
- In-depth analysis with finance leaders—without creating a data deluge
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If you’d like to better understand how to track and streamline your KPIs, contact your Moss Adams professional.