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Business Performance

Metrics and KPIs, Do you know the difference?

Metrics and KPIs are not the same. How do you know if your business is successful? Do you use metrics? Or do you use key performance indicators? What is the difference between them?

Metrics and KPIs

A metric is a measurement you use to track and assess the condition of a process. These measures give you information about how the process is working and provide a baseline for improvements. KPI stands for a key performance indicator. It measures how well the business is doing against a goal. Key performance indicators are strategic, and metrics are tactical.

Example of what metrics and KPIs are

Let’s use the Yummy Broths restaurant that specializes in soups as an example. One process for Yummy is cooking a plate of chicken soup. To measure the status or condition of this plate, the owner can use the cost per plate, sales per day, or the quantity of the ingredients per batch. One goal for Yummy Broths is to increase the gross margin by 20% before the end of December 2020. The owner decided to track the cost of goods sold (COGS) as the KPI.

KPIs are metrics, but as the name indicates they are key metrics. Not everything is key, otherwise, nothing is. KPIs are like vital signs for the business. Metrics are tactical because they measure the daily business activities that support the accomplishment of the goals. The KPI will let you know If something is wrong, other metrics will help explain why.

The restaurant owner decided to increase profit by reducing the cost of goods sold rather than increasing revenues. The standard is 31% of the sales or less. When the COGS reaches 40%, Yummy Broths owner knows that something is wrong. He knows that for his business profitability, inventory cost is vital. One way to control it is by making sure cooks use the right amount of ingredients to prepare each recipe. Looking at the ingredients used, he realized that compared to the standard, the ingredients per batch are off. Cooks are using more quantity than the recipe asks for. Now he can take action to correct the performance against the goal. Meeting the ingredients per batch standard will support achieving the COGS.

Selection and follow-up

There are two critical things about KPIs, selection, and follow-up. Select indicators that aligned with the business objectives. Always look for the best way to measure the progress towards the goal. Also, since they are critical, monitor them weekly. Do not wait until the month-end because it will be too late to do something if you need it.

Now that you know the difference between metrics and KPIs, go check if you selected the right metrics to measure your business goals.

CI Basics

Do you know what a process is?

A process is a series of steps or activities necessary to achieve a goal. Some examples are: cooking, plan an event, create an invoice, and checking out in a store. Everything that we do in steps is a process. Each business consists of processes that together make possible the delivery of a product or service. The effectiveness of those processes and how they work with each other are a big part of business success.

Is your business receiving bad ratings for poor service? Are people complaining because they receive something other than what they ordered? Are you missing deadlines? If you answer yes to any of those questions, then you need to improve those processes as soon as possible. The inefficiency of one or more of them or the flow between them is affecting your pocket. If you adopt continuous improvement, you will create small improvements frequently. That will keep your processes efficient and effective.

The first step to improve business processes is to identify what areas need change and prioritize. Complete an assessment of your business processes. Identify what is working well and what is not. What processes are affecting your organization or customers? Map the process you chose to improve first. With a process map, you can visualize the sequence of steps. Analyze where the flow stops, and see if there are delays or waiting time. What step takes longer to complete? Why does that happen? It is important to find the true cause of these problems to avoid recurrence.

Ask your employees for feedback, involve them in the analysis and innovation. Design a new process based on your findings. Implement and communicate the reason for those changes. After the implementation, you need to review the results. Is it working? Are you getting the expected results? If the answer is yes, then you are ready to tackle the next item on your priority list.

Are you ready to start? Practice continuous improvement to keep making your processes and your business better. Contact Better Process Solutions if you need help to start your improvements!

This article was originally posted in Organization and Efficiency Solutions.

CI Basics

What is Continuous Improvement and why you need it?

Continuous Improvement is a business management system designed to create customer value with fewer resources.

Do you want to increase the net profit of your business? One way to do this is to reduce the operating expense. How do you do that? Where do you start? Have you ever considered a continuous improvement strategy?

What is continuous improvement?

You want to learn and practice Continuous Improvement (CI). CI or Lean is a business management system designed to create customer value with fewer resources. This system is a group of principles, best practices, and tools. Lean was born from the necessity to be more efficient and be able to operate with fewer resources. For that reason, it is the ideal tool to reduce costs.

Although CI was born from the necessity to become more efficient, it is not a cost reduction tool. It is a peoples’ system which means that the focus is to develop the team skills and help them grow. When you take care of your team treating them with respect and helping them to develop their skills and contribute they take care of your customers. Also, they will help you to improve processes and minimize costs.

Contrary to common perception, Lean or CI is not for manufacturing companies only. CI works in the office, retail, warehouse, mechanic shops, medical and other types of businesses.

How can it help you?

With CI tools, you can draw a map to see how the information or product flows in your business and identify inefficiencies or waste. Once you know the problem, you can start working on solutions. There are various mapping tools used to assess the process flow and identify waste. Some of them are value stream map, process map, and swim-lane map. Also, there are tools for housekeeping and organization, inventory control, and process standardization.

Do you want to reduce operating expenses? Do you want to start the year knowing what to do? Subscribe or follow this page to learn simple and effective process improvement solutions.