The key to any business is spending less then the business earns. While in the short term it is possible to spend more then you earn in the short term with the future in mind, it quickly becomes apparent that it is not feasible in the long term. The primary way to ensure that the business is efficiently operating without spending to much is to measure the performance of employee’s, property and plant.
Different business can make use of measuring different aspect’s of their business better then other’s of course. For example a factory can better measure the productivity of their employee’s on an hourly basis then maybe a bank could. However a Bank maybe be better able to calculate the productivity of the property they control.
The key to measuring performance is measuring the right key performance indicators. A Key performance indicator should be something that you can easily use to calculate your current performance level and and to continue to measure how that level of performance improves over time. One example may be for a supermarket night fill department. In this situation the best indicator they could use to measure performance would be number of boxes filled to shelves each night. It is something they can calculate easily based on their deliveries, the number of paid employee hours and using some simple calculations they can work out how much it costs them to fill one box to a shelf. This is something that could be continually measure to monitor costs of night fill in their store.
Measuring the performance of Property does become a little more difficult, in a lot of cases the property it self is not directly a reflection of anything to do with the business. However for some industries such as retail property can be used to measure some forms of performance for a store. All retail businesses know the floor area that they occupy, when you calculate your profit or revenue for this space, and work it out to a $X of revenue per square meter, you have a better idea of where to start to improve this. For example, if you are currently turning over $10,000 per square meter per year and you look at the breakdown of value of products to space being used, and adjusted this proportionately for different value’s you may see this rise or fall depending on how you altered the usage of the space, and have an indicator for space to revenue.
Finally machinery or plant, can be a little more difficult to calculate performance indicators for as depending on the level you want to calculate. If it is purely based on hours to produce X amount of goods this is easy enough. However if you want to take into account all the costs associated with purchasing the machine, operating the machine and maintaining the machine, then the other factors can be important to determine.
At the end of the day, many performance indicators come down to knowing two related factors and simply dividing one by the other. However key performance indicators can be as complicated as you like to ensure you know that your business is performing at a profitable standard. Many of these factors can give a very important insight to how your business is operating and just where you may be able to improve your business to make it a more profitable and more streamlined operation.