How to Measure and Manage Business Performance

Business Performance October 29, 2020

Chloe Henderson

Writer

Improving sales and profitability is not a one-time task; it requires a continuous effort from all departments and operations over an extended period of time.

By tracking business performance through metrics and key performance indicators, companies can optimize internal operations to ensure all departments are working in unison. This provides valuable quantitative data to enhance decision-making and management skills.

What is Business Performance Management?

Business performance management (BPM), also known as corporate performance management (CPM) and enterprise performance management (EPM), refers to the methods, processes, and workflow that companies use to manage their performance.

BPM typically includes software, planning, data collection, analysis, and reporting used to help organizations achieve goals. This is a broad concept as it can be applied to every business process to improve performance and reach the desired outcome.

Standard BPM processes include-

Budgeting and Forecasting

Business Modeling

Dashboarding

Scorecards

Data Consolidation

Management Systems

Financial and Management Reporting

Compliance, Corporate Governance, and Internal Control

Risk Management

Business and Predictive Analytics

Through data collection and evaluation, management can use historical information to determine what changes need to be made to optimize systems. BPM that uses technology enhances a company's functionality and business intelligence.

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Regardless of the processes used, BPM consists of three crucial activities-

1. Select business goals and identify which systems and policies impact the company's progression towards the objectives.

2. Gather and monitor information to analyze progression.

3. Review results and make adjustments where necessary to improve efficiency.

Proper BPM is very important, as it-

Enhances Decision-Making

The more information a business has access to, the more they can enhance their decision-making.
Decisions should not rely on guesswork or personal intuition alone, it should be supported by factual evidence, such as metrics and analytics. By making data-based choices, management can actively improve efficiency, profitability, and productivity.

Increases Efficiency

BPM typically utilizes management software, which handles repetitive tasks, such as documentation, to streamline processes. With automation, businesses won't have to designate employees for data gathering, consolidation, and exchange. This not only reduces the need for manual labor but increases efficiency and accuracy as well.

Unites Departments

Unless all departments are on the same page, it can be challenging to meet objectives. By uniting all employees with enhanced data sharing, businesses can ensure all departments are working towards the same goals.

Identifies Risks

By frequently monitoring real-time metrics and performance, companies can detect emerging threats to mitigate risks ahead of time. This prevents late responses, which often lead to significant repercussions.

How is Business Performance Measured?

As market trends continuously change, businesses need to ensure that they can adapt to optimize their performance. Companies can measure their performance by following four steps-

1. Set Goals

Goals are different for every business, some want to attract more customers while others focus on retention rates.

Common business goals include-

Increasing Sales

Enhancing Customer Service and Satisfaction

Boosting Profit Margins

Increasing Market Share

Lead Generation

Optimizing Operational Efficiency

Streamlining Processes

Driving the Bottom Line

Expanding Sales Channels

Enhancing Marketing Strategies

By clearly stating the business objectives, departments can focus their efforts on creating a productive work environment.

2. Develop Key Performance Indicators

Key performance indicators (KPIs) are metrics that provide insight into how a company is performing. Standard KPIs include generated revenue, productivity levels, and output metrics. These insights enable management to track their progress towards desired outcomes.

Setting a benchmark KPI is helpful for monitoring performance and is different for every business. Therefore, managers should take the time to choose a KPI that is feasible and productive.

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3. Define Metrics

Business metrics, like KPIs, are measurements used to monitor and evaluate a system's performance. However, metrics tend to focus on specific processes, such as marketing, sales, and accounting.
These measurements provide stakeholders and employees with a quick look at performance and profitability.

4. Monitor and Measure Data

Lastly, management needs to narrow down the KPIs and metrics to determine which measurements are relevant to the established goals. This ensures crucial figures are not overlooked.

What Does a Key Performance Indicator Measure?

KPIs are excellent tools to measure the real-time performance of individual processes, tasks, and departments. Once a business sets their KPIs, they can develop effective strategies to reach their goals, evaluate their progress, and record their performance.

There are many different operations that businesses can track using KPIs, such as-

Financial Performance

When performing a company's finance review, management can assess cash flow, capital, cost base, growth, sales, and expenses to create KPIs. This makes it easy to leverage financial data to improve business strategies.

Profitability

Most businesses seek to drive profits and therefore monitor profitability KPIs, such as-

Operating Margin

Gross Profit Margin

Net Profit Margin

Return on Investment (ROI)

Customer Loyalty and Retention

By collecting customer feedback, reviews, and suggestions, businesses can develop KPIs to track customer loyalty and retention. Management can gather this information from social media, sales data, surveys, and filed complaints. This enables companies to identify what systems and services need improvements.

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Employee Performance

With management systems, such as employee and point-of-sale (POS) software, supervisors can collect employee performance KPIs, such as profit, sale, and contribution per worker. This helps determine if some employees need extra training to improve customer service and sales skills.

Benchmarking

Benchmarking is the practice of setting short-term milestones to help businesses reach their goals. By carefully planning benchmark KPIs, companies can compare their performance with expectations to determine if their objectives are reasonable or need to be adjusted.

Competitor Evaluation

Analyzing competitors looks different for every industry. Depending on the market, businesses may want to track competitors' pricing, product lines, services, or competitive advantages. Monitoring these elements enables companies to pinpoint their own strengths and weaknesses to improve performance.