Performance management dashboards have proven to be a valuable addition to financial management systems. When correctly implemented, dashboards can generate significant value by providing the link that connects management’s strategic intent to actual business performance.
The first step to implementing an effective dashboard begins at a strategic level. Step 1 is to identify two or three key characteristics that express your business’ value proposition. Wikipedia defines value proposition as: A value proposition is a promise of value to be delivered and a belief from the customer that value will be experienced. A value proposition can apply to an entire organization, or parts thereof, or customer accounts, or products or services. Basically, a business’ value proposition is comprised of the characteristics that bring customers/clients to that business rather than a competitor’s business. Once you have identified the two or three characteristics your customers value most, you can move onto the next step.
In step 2, you need to identify the two or three measures that most highly correlate with a specific characteristic. For example, if quality is one of the two or three characteristics that your customers value, then you need to identify two or three measures that allow you to measure quality performance, such as complaints, returns and failures. If reliability were part of your value proposition, then potential measures would include mean time between failures, mean time to repair, and average repair cost.
Next is the fun part. In step 3, you need to identify what performance, by each measure, equates to the level of performance needed to support your value proposition. Using a couple of the examples above, if you are tracking measures for quality then you would want to track the absolute number of complaints being received per month as well as categorizing them by type. You would also want to track returns and failures by month, possibly categorizing the return reason and failure modes. With luck, you already have historical information on your measures which will greatly simplify target setting. If not, then you will need to establish the tracking mechanisms and establish targets once you have accumulated results for a short duration.
In step 4, you need to identify what tool you will use to create and maintain your strategic dashboard. The least costly option is to use Excel’s charting functionality, but it requires a high level of Excel skills to create and maintain the graphs. Software vendors that provide specialized dashboard software include Dundas, Visual Mining, Crystal Dashboard Design, TableauSoft, and many others. Check out their websites to see examples.
My personal choice, which is the most cost effective, is to create my own dashboards using Excel’s charting capability.
Finally, in step 5 you need to set aside a component of the company’s compensation budget that is dependent on achieving the metrics/goals that have been established. The importance of dedicating, even a modest amount, of compensation to achieving your metrics/goals cannot be overstated. Through effective financial planning, you can offset your new bonus plan with savings from other areas, creating greater employee focus and buy in while decreasing overall expenses.
If you are interested in setting up similar tools, please contact me or one of my other Partners so we can help you take your business to a higher level of success!