Trigger points occur during the year — the new calendar year, a new tax year, the anniversary of setting up the business — when a business owner is more likely to think about their business and consider their aspirations going forward. Other significant events can also trigger reviews: a key member of staff leaving, difficulty in paying an invoice, or being late with a VAT return. But if a business is to keep on track towards its long-term objectives, a formal forecast and monitoring process needs to be in place year-round, not just at trigger points.
Designing a Review System
A review system is not as difficult as it might seem. Macro-economic effects need only be reviewed annually to notice a difference. Long-term internal targets will be reviewed annually too, but with interim quarterly check-ins on progress. More detailed planning and reviewing should occur monthly, weekly, or daily as appropriate. Most people would agree that reviews should focus on marketing, sales, operations, and finance — each with their own natural cycles and short- and long-term considerations.
What to Measure: Frameworks Worth Knowing
One of the first performance measurement frameworks was developed by Kaplan and Norton in the 1990s: the Balanced Scorecard (BSC). It provides measures for a commercial business across four dimensions. Whilst in the 1990s a business could exist in isolation from the community around it, today the impact businesses have on the community and environment is under the spotlight. A highly profitable business may not be sustainable if the public decides its activities are unethical or harmful to the planet.
Business in the Community has developed a framework that includes both commercial and wider community and environmental credentials, with suggested metrics in each dimension — saving you the effort of developing specific KPIs from scratch. For businesses focused specifically on staff, the Investors in People (IiP) system provides detailed KPIs for people management, many of which overlap with the more holistic systems above.
A Word of Caution on Metrics
There is a myriad of frameworks available. External ones offer the advantage of benchmarking against others and shared learning experiences. However, collecting accreditation badges can be counterproductive. The selection of KPIs and their calculation should be done with care to avoid unbalancing the business. As Peter Drucker is often quoted: “what gets measured gets done” — but the McNamara Fallacy warns against the dangers of blindly setting and following arbitrary metrics. The first step is to measure what can easily be measured; the danger comes when things that can’t be easily measured are presumed not to be important, or not to exist at all.
If you know where you want to get to and are having trouble keeping on track, get in touch to discuss how to quantify the interim steps and set up metrics to monitor progress — so you can take action at the appropriate time to head off major issues.
