The main responsibility of the top management of the company is to create a strategy, determine the goals and objectives of the enterprise. Realization of these goals lies on the shoulders of employees from structural divisions. Company development may be at risk if the exchange of information between employees and management is poor. This is mainly due to the information overload of management and the inability to rationally assess the situation at work positions. This, in turn, affects the quality of control over personnel actions and the implementation of the strategy.
The impact of KPIs on a company
If there are no specific strategic goals for the staff, and also there is not enough motivation, this leads to the fact that employees are not able to determine the right course and are not able to act for the benefit of the company. This inconsistency often leads to waste of company resources on tasks that are of secondary importance. Such problems arise quite often, and many enterprises around the world suffer from them.
It is difficult to name a self-sufficient strategy of the enterprise. Management aspirations are to achieve goals through setting goals for the staff, as well as quality control over the quality of work performed. In the chain of elements that are necessary to achieve these goals, which are a control cycle, there are two elements:
- Management - staff. At this stage, the leadership defines the tasks, brings them to the staff in the form of specific settings, and controls this process using the information that employees provide. Then, if necessary, the task is adjusted and brought to the attention of employees.
- The staff is a guide. Employees receive a specific task necessary for the company, begin its implementation and inform management about how successfully it is implemented. Further, employees receive information from management about the correctness of their actions and, if necessary, correct them.
That is why many modern entrepreneurs are interested in KPI (key performance indicators), what it is and how it can help in management. After all, the weak link in the chain shown above is, in fact, the connection between management and staff. If failures occur in her work, then decisions will be made taking into account information that is inferior. According to some managers, the guarantee of the correctness of their decisions depends on the amount of information collected. But in this case, this is a wrong opinion, since the time to evaluate information is increasing, and its quantity is not at all responsible for its quality.
Management tools
Any leadership needs a tool to get high-quality and adequate information for decision-making. Western companies have long used key performance indicators for this company and balanced scorecard.
Under KPIs, a system of indicators (financial and non-financial) is considered that have an impact on the qualitative and quantitative change in the result of the work of the staff or the result that is expected. It includes the coefficients of each controlled object, as well as the methodology for their assessment. This allows you to focus on achieving strategic goals, based on an assessment of the effectiveness of the organization.
Key assessment performance indicators It is precisely that tool that can show how well management is carried out in relation to the results with respect to the goals set, taking into account the value and position of the company in the market. It should be borne in mind that this tool is able to facilitate the decision-making process by management thanks to complete and high-quality information, but it cannot solve serious systematic problems of the organization. This technique does not provide ready-made solutions, it only reveals the area in which the problem arises.
The transition to new methods of progressive company management is justified by the fact that the old methods, which include increasing the scale and pace of production, as well as improving product quality, do not create the necessary competitiveness. Thanks to modern management tools, the organization can quickly respond to any change in the market.
The main task pursued by the system of key performance indicators together with balanced indicators is to transfer the company into a comprehensive set of necessary indicators that can highlight the main elements of management and measurement. Thanks to this set, the organization’s strategy is formed, which is able to include all the necessary qualitative and quantitative characteristics in order to timely inform workers about the factors that affect present and future success. Having formulated the results that should be achieved, the organization not only determines the goal, but also works on the conditions that allow for better and faster to come to its implementation.
It is important not the amount of information, but its objectivity, accuracy and relevance in order to correctly conduct all the necessary calculations. The concept of balanced indicators is that for success, the strategy lacks traditional financial and economic indicators. To solve the problems, it is necessary to better balance the key performance indicators taking into account various planes in order to control the factors that have an impact on these indicators. Do not pay much attention to past achievements, it is worth evaluating future results. If you focus indicators on only one area of activity, but this will undoubtedly have a bad effect on the final result.
System implementation
To introduce the system to the enterprise, there are certain stages that should be performed sequentially. Violation of this sequence can negatively affect the final result.
The first stage is the formation of a strategy
A clearly articulated strategy should describe the main steps to achieve the desired results and goals. It needs to be divided into specific initiatives, where tasks for individual departments of employees will be highlighted. Thanks to this, significant savings are made not only in money, but also in time.
The second stage is the identification of key factors
Here it is necessary to determine the most important factors, or rather, the parameters of the aspects of economic and economic activity that have an impact on the implementation of tasks and the implementation of the strategy. These factors significantly affect success.
Stage Three - Key Performance Indicators
It defines the measures necessary for the strategy to be successfully implemented. KPI is used as a tool for their determination. It is worth highlighting only the most sensitive of them, while not using secondary indicators. They should be challenging for staff. Among the main requirements for the system of key performance indicators should be highlighted:
- Clear limitations on the number of indicators.
- They must be uniform for the whole company.
- The possibility of obtaining a digital indicator format.
- It should be directly related to the factors that influence success.
- Indicators should motivate employees to meet the goals needed for the organization.
Key performance indicators: examples
Take, as an example, the workshop of overhaul of wells (KRS). The strategic objective for this organization will be to increase the level of production of the product, which will be expressed in the debit of the wells and a decrease in the factors that provoke the loss of the product and reduce its cost. In this regard, the KPI should be set so that it reflects not only the goals of the company itself, but also touches on issues regarding a specific unit. If repairs are made, then the well stops working, therefore, it is worth considering the costs caused by the shutdown.
The structure that key performance indicators for this unit have may have the following structure:
- Well downtime (lost production opportunities).
- Calculation of the average duration of repair work (in the ratio of actual and planned).
- Calculation of each unit price per ton (in the ratio of actual and planned).
- Calculation of how many repairs are carried out (in the ratio of actual and planned).
- Repair costs (actual and planned).
Thus, using KPI (key performance indicators), the examples of which are discussed above, employees are encouraged to reduce costs and increase oil production. This not only meets the general goals of the company, but also affects the quality of work of a particular unit.
The fourth stage - work with a balanced scorecard
This stage involves the development of a generalized system, including financial and non-financial indicators. This takes into account both the object of control and the assessment of factors affecting the overall picture of the effectiveness of the enterprise.
The fifth stage - the selection of technical solutions for the implementation of the tool
At this stage, determine the data source by which the indicators will be filled, it must satisfy all the conditions for the reliability of the information received. You must first create a strategy to introduce a new management tool. Decide on the goals, given how positively they will affect the state of the company. Also need to configure information flow to correctly calculate all indicators. There are many more points needed to implement the main goals and objectives of the organization, which key performance indicators will help to cope with.
