With the increase in computing power, Big Data, and artificial intelligence, managers can get lost in the information they are receiving.  The old phrase “paralysis by analysis” has taken on a new meaning in the modern business world. One-way managers try to overcome the avalanche of information they get is by using Key Performance Indicators (KPIs), balanced scorecards and dashboards. A dashboard should instantly supply the key pieces of information a manager can quickly see to determine if operations are efficient or not.  For instance, a sales manager may want to know the following information on a real time basis: sales backlog, sales orders, shipments, and the gross profit associated with each. These six pieces of information can give the sales manager a quick and fairly comprehensive view of how his department is performing. Each manager should have his own set of PIs (performance indicators) so operating challenges and issues can be quickly discerned and addressed in their individual areas of responsibility.   

Here are some quick rules for using KPIs, balanced scorecards and dashboards.

  1. KPIs and dashboards provide a quick view of operations. Managers must make sure they are not overly reliant on them.  KPIs do not substitute for a deep dive into the financial and operating results on a periodic basis. Businesses do change over time so the KPIs may need to change with the times too. As a rule of thumb, KPIs belong on the balanced scorecard, and PIs (performance indicators) belong on dashboards.
  2. There shouldn’t be too many KPIs, or you may be starting down the path of information paralysis.  You will really need to think about your operation, and what information is essential to monitoring it. Being able to winnow down the number of KPIs to a handful of numbers will help you “laser focus” on them.
  3. Each manager must be able to design his or her own dashboard for it to be effective. The information the sales manager references above does not necessarily help the credit manager or the production manager do their job. The CFO might wish to track receivables and cash on hand, but such information may not be relevant for the IT department. When evaluating information systems, the flexibility to supply individualized dashboards should be a selection criterion.
  4. Make sure the information system can provide non-financial data as well. Non-financial data can also be critical to the management of an organization.  Headcount by department, total pounds of scrap produced by department and total pounds of output are examples of non-financial information various organizations may find critical. Providing this type of data may require “bolt-on” packages or system integrations.
  5. Upper management should disclose the KPIs it is watching to middle management.  Why bother to use KPIs if no one knows you are using them?  We have all heard the stories of managers being surprised at their annual reviews because they assumed their personal success criteria was also being used by upper management.  KPIs can be even more effective when they are communicated to other members of the organization.
  6. KPIs can be used as performance measures. Objective data is extremely effective when evaluating employees as disagreements can often be minimized.
  7. Keep the design of the dashboard as simple as possible.  For instance, a traffic light rating system is simple but effective when comparing financial information against budget or customer satisfaction surveys against minimum requirements.   Everyone knows what a red light means when it pops up on the dashboard and will address it as soon as possible.