Failure to use Key Results Indicators is a failure to use your financial statements. A wealth of valuable information is waiting to be used to identify what changes need to be made based on the results reported in your P&L Statement and your Balance Sheet.
The failure to use KRIs is like the failure to slow down and pull over because you didn’t see the Highway Patrol officer coming up on you. Nothing worse than that sick feeling when the lights go on, indicating you have to pull over.
Just like attending a sporting event is enhanced by its scoreboard, having a scoreboard for your business to realize the benefits of knowing what’s working and what isn’t in your business is how you keep everyone in your business pulling together to achieve planned results.
Overview
Key results indicators (KRIs) are lagging measures confirming the actual results achieved and are used to establish whether you hit or missed your goal. Each lagging metric is the outputs that confirm the results of what happened.
KRIs shows the final score of your profit plan execution. These metrics summarize the results of actions taken and not taken. As a result, they are easy to measure but impossible to improve upon directly or influence in the near-to-short-term. They benefit business leaders as follows:
- Confirms RESULTS
- Financial-based
- Longer periods—measures months and years
- Drives CHANGE
You need to utilize both leading and lagging metrics to manage your business. Your KRIs are your lagging metrics that confirm how your business is performing relative to your goals. KRIs are your core financial results for revenue, costs, and profit. They measure the effectiveness of past activities throughout your company during any given period.
One of the primary differences between owners of profitable versus unprofitable business owners is how they review their P&L Statements each month. Unprofitable business owners are too caught up in dealing with the problems of the day that they don’t take time to monitor, at a minimum, their monthly financial reports.
Unprofitable small business owners remain small because they’re never sure exactly what they should look at when they review their P&L Statement. The reality is all that is needed is a quick monthly P&L Statement review to help you identify precisely where you need to begin taking new actions if you want to achieve better results in the following month. Primarily, they use the Financial Statement KRI metric formulas to look at how well they “got, did, and enabled work.”