Big Ideas for Small Business

Why You Can’t See What Changed Performance

ChangesThe monthly reports you produce provide plenty of detail on the performance of your organization but they maybe missing a key component. What’s missing is why the change occurred. Why does this happen? There are several reasons.

KPIs Are Not Centralized

The first is that the key performance indicators that measure the causes of a change are not collected in the same place. They may be captured in different functions.

Departmental and functional reports don’t pull those KPIs back together. So you will not be able to see the key performance indicators along with the change you are trying to assess. Without this comparison, you will not be able to determine the reason for the change.

Not Enough Periods

The second problem is that most reports only show one or two periods of data at a time. You see the performance for this month and maybe the same month a last year. But two periods do not make a trend.

If you want to understand what caused a change, you need to see at least whole year’s worth of numbers. When you look at a series of numbers rather than an individual number, you can see the difference between gradual changes and event driven changes.

For example, an increase in raw material prices may allow you to raise your prices which increases your sales significantly. This spike in your sales number from this increase in prices would be significantly different than a gradual increase to the same level caused by increased sales. Without being able to see multiple periods, these kinds of events will remain hidden as changes.

Need to Compare with External Organizations

The third reason is that most reports lack comparison with external organizations. This is important because external organizations are operating in the same economy as we are.

Your performance does not happen in a vacuum. If the economy grows it is important to know if your Sales grow in the same proportion. Or if you costs and prices increase, are your competitors affected the same way?

You need to compare your performance to your competitors or peers. Without this comparison, you cannot see how much of the change that has happened is related to your actions and how much is related to changes in the external environment or the economy.

Understanding Change

If you want to understand the reasons for changes in your key performance indicators, don’t just present the changed key performance indicator in isolation. Include those key performance indicators which drive the change. Present at least a year’s worth of numbers for every key performance indicator and gain context for your performance by comparing yourself with external organizations.

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