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Data and Analytics , Intelligent Finance

What a KPI is
and why you need it

How high-performing companies improve profits with data
17 September 2022

Clear understanding
drives extraordinary results

Key performance indicators (KPIs) convert data into useful measures that a business can use to determine how well it is hitting its goals. While different types of businesses use different KPIs, the main purpose is to identify where the company is doing things right and where it needs to improve. A good KPI monitoring system or dashboard provides this information to decision-makers with the assurance that it is current and accurate.

From descriptive reporting
to prescriptive analytics

Raw data is generally not very useful to a business. While it can tell a manager basic information such as the number of customers and the number of sales over a period, it does not show patterns or identify cause and effect. It only provides a type of summary that explains what is happening without any clear insight as to why it is happening. This is where data analytics come in.

Data analytics pulls together all of the relevant data that has been collected and converts it into a form that communicates valuable insights. This process provides actionable information that managers can use to monitor their business more closely and make timely decisions to improve performance. Without analytics, an organization is not making the best use of the data it has collected.

From big data to decision via analytics
For example, the collected data may show that there has been an overall increase in sales. However, when this data is analyzed further, the company may find that one location has increased its sales dramatically while another location is losing sales. Without performing this type of analysis, the business may not realize that the second location needs to make significant changes.

While this is a simple example, the process becomes more difficult when large amounts of data have been collected. To be insightful, this data must be analyzed and compared in the context of factors like region, department, time period, etc. Even more importantly, these insights need to be communicated to decision-makers in a way that is simple to understand at a glance. The company in our example would have eventually recognized the problem, but having this information provided regularly would allow them to address it as soon as possible.

Drive growth with
Key Performance Indicators

Not all data collected by an organization is equally valuable. In fact, some data may not be useful to a business’s day-to-day or long-term operations. Certain metrics must be prioritized among the helpful data, and relevant factors must be considered when analyzing them. This varies from one industry to another and even from company to company. However, there are certain types of data that are typically considered KPIs.

Businesses, at a basic level, want to increase profits and decrease costs. As such, common KPIs include sales growth, profit over a period of time, expenses (such as payroll and cost of goods sold), customer retention, and fulfilment timelines. By focusing on these KPIs and having them presented in a form that is easy to read and understand, businesses can quickly catch problems and make changes.

But how does a business extract this helpful information from a mountain of data and get it into a usable form? There are different types of software that help companies accomplish this.

KPIs that keep
your company improving

Profitability

Measure how effective your business is at generating profit

Customer Centricity

Explore customers’ satisfaction, retention, loyalty, etc.

Efficiency

Evaluate the operational performance across an organization.

And much more

There is no limit to what KPIs can explain. They can be tailored to every situation.
Woman working with data and graphs in spreadsheet
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From spreadsheets to modern analytics

Most people are at least familiar with spreadsheet software such as Excel. Many companies use spreadsheet software to collect and store their data. However, many companies fall short when it comes to tracking or converting that data into actionable information. If a business is not making good use of the data it has collected, then the business may suffer unnecessarily.

Software such as Alteryx can be used to extract, transform, and load (ETL) data. The ETL process cleans data (for example, eliminating duplicate information or incomplete customer contact details) and organizes it into a form that is easier to analyze.

Visualization software such as Power BI and Tableau can be used to analyze this clean data and present it in a way that tells a story visually. This can help managers see exactly where the business is falling short, where more attention is needed, and identify waste. KPIs are updated regularly so that a decision-maker can see the current status of crucial metrics and track them more efficiently.

The use of a visualization tool can create a dashboard that communicates the KPIs in real-time. With this, a manager can tell at a glance that a certain location is more profitable, that a particular product is not selling well, or that orders are not being fulfilled in the expected time. By tracking this, problems are dealt with as soon as possible.

Conclusion

It does no good for your organization to collect data without making full use of it. Having a data analyst work with your company to ensure KPIs are properly tracked and reported can significantly boost your company’s productivity and profit.

HOW WE CAN HELP YOU FURTHER

Related Services

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We organize and examine data to create actionable intelligence.

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