LUTZ BUSINESS INSIGHTS
Unlocking Your Data + Starting with KPIs
TONY DESANTIS, DATA ANALYTICS DIRECTOR
KPIs (key performance indicators) are an essential tool for business leaders and organizations trying to unlock their data and start their analytics journey. Many of you may already understand what KPIs are and why they are important. But what are the “right” KPIs, and how are they created?
KPIs, help you understand how you are performing and if any issues need your attention. You can use KPIs to measure progress, identify opportunities and drive success. However, if they aren’t the right KPIs or the complex data underlying your KPIs is not understood, it can be difficult to find actionable insights. This post will teach you how to think about questioning your business’s data so that you can design, capture and measure relevant KPIs and unlock their value.
Asking the Right Questions
There are countless ways KPIs can be used to improve business performance. By way of example:
- Increasing Sales
- Improving customer satisfaction
- Reducing Costs
- Enhancing employee productivity
- Minimizing risk
However, if the right questions are not asked, then the answers and insights the KPIs provide may not be what you think. Let’s use the goal of measuring increased sales to consider the questions we should ask about the data.
Suppose you’re trying to increase sales and want to design KPIs to track how the organization is doing. Does simply showing an increase in sales mean you’ve achieved your goal? Probably not, so what questions should we be asking?
- Is it sustained growth or a 1-time blip?
- What department, region, or product is driving growth?
- Are all sales created equal?
To answer these questions, it is important to understand the content and the context of the data you are looking at.
Content vs. Context
Content is the measurement itself. So, if we’re measuring sales, for example, the number of products or customers is the content.
Context is the positioning of the content within the data. When did the sale occur (month, quarter, year), where did it occur (store, department, region), or what products those sales were for all provide context to the sales numbers.
To create valuable KPIs, it is important to understand both the content and context of the data. To get a better understanding of the content, it is important to explore and analyze your data.
For example, an overall increase in sales may mask the fact that several months had significant decreases in sales. By looking at the monthly data, one might ask, what did we do well to increase sales, what factors contributed to the increase in sales, or how do we bring the other months up, so our overall increase can be even more?
Are all sales created equal? If we sell 1000 more drinks this month, was this a successful week? What if we had to offer discounts to customers in order to sell those extra drinks? Did the discount eat away the profit margin? Did we make any more money even though we increased sales?
Exploring the data can be key to developing better KPIs. These steps can be done with varying levels of sophistication but will help create a solid foundation for your KPIs.
- Obtain Relevant Data or Determine How to Capture It
- You can’t measure it if you don’t capture it. If you need KPIs around areas you are not capturing data, find a way to capture it.
- Profile, Transform and Consolidate Data
- Creating clean sets of data, even if it’s not perfect, can help with the development and design of KPIs.
- Explore the data, question it, iterate through analysis trying different approaches to better understand what the data says about the business.
- Reporting and Visualization
- Create meaningful KPI reporting that provides context to the KPI and provides the answers the organization is looking for.
Each business will have its own unique set of KPIs. Still, as an organization, understanding what drives sales/costs and how you can measure and manage them can provide more targeted KPIs. The goal is to use the information from these metrics to make better decisions about how best to use resources, maximize profits and minimize costs.
The most important thing to remember when creating KPIs is that it’s essential to find out what you want to measure and why. Your KPIs should provide insight into your company’s performance and should be relevant to internal operations and your customers. Start with asking the right questions. Contact us if you have any questions or learn more about our data analytics service.
ABOUT THE AUTHOR
TONY DESANTIS + DATA ANALYTICS DIRECTOR
Tony DeSantis is the Data Analytics Director at Lutz. He began his career in 1999. He is responsible for interpreting and analyzing data, as well as designing report visuals in support of client engagements. In addition, he specializes in data management and the application of artificial intelligence to simplify business processes.
AREAS OF FOCUS
- Data Analytics
- Data Visualization
- Data Management
- Artificial Intelligence
- Forensic Analytics
- BS in Finance and Operations, Minor in Management Information Systems, University of Delaware, Newark, DE
- Junior Achievement, Volunteer
- Gilda's Club Chicago, Past Board Member
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