Written by: Iliana Rocha, Executive Contributor
Executive Contributors at Brainz Magazine are handpicked and invited to contribute because of their knowledge and valuable insight within their area of expertise.
Many leaders and business owners recognize the need to manage employee performance but don’t necessarily have robust performance management frameworks in place to manage overall business health. This results in a number of challenges. How will you know whether you are on track to meet your annual and long-term goals? Do you have mechanisms in place for early warning signs that something is not going according to plan? Additionally, many business owners focus on revenues, but there is a myriad of other drivers that you can monitor so that you can proactively adjust your course of action as conditions change. Therefore, performance management of your employees and vendors is a good start, but you also need to make sure you are managing the performance of your overall business.
You have heard of a balanced scorecard approach to look at business health holistically. I prefer to develop performance management frameworks because a scorecard implies simple reporting. On the other hand, with a performance management framework, the focus is on how you use the data and information you have gathered to reflect on your progress and adjust and course-correct as required.
Here are the top 5 considerations when designing a performance management framework:
Identify the relevant metrics that you need to monitor. Look beyond revenue – revenue tends to be a lagging indicator, and by the time you notice that things are off track, it may be too late for you to address the issues in time. You need to focus on leading indicators — the metrics that will help you flag potential challenges well in advance. To do that, you need to know your revenue and cost drivers. For example, what does your sales funnel look like? Do you have the right number of leads in each of the sales stages? Is the velocity of your conversions improving or deteriorating? Analyzing any of these indicators should give you early warning signs that your revenue is about to decrease or increase.
Set targets. Plan what your performance should be for each of your performance indicators. You should know your historical performance and then decide whether you want to keep it as is or assume changes in the future. Once you apply your assumptions to the historical trend, you should have some high-level targets with identified timelines to manage to.
Forecast out your expected performance. Monitoring how you perform each month is important. But you also need to forecast where you expect to be in a month or a year from now based on the changes you are observing in the business. It doesn’t have to be a super detailed, time-consuming forecast, but it should be directionally right.
Compare targets to forecast. Are you forecasting that your business will underperform or overperform as compared to the targets you set? What is the holistic view of the forecasts for all your performance metrics vs. their respective targets telling you about your business health?
Adjust as required. You now have an early warning signal framework which will highlight potential business issues or wins well in advance. This allows you to adjust your course of action to either avoid a negative impact on your business or leverage a positive trend.
The bottom line is that you need to improve the predictability of your business performance. And to do so, you need to identify the right metrics, track their performance, re-forecast them regularly and design preventative and corrective actions to meet your business goals. Only when you are looking towards the future will you have a real handle on your business performance while analyzing your most up-to-date results.
Iliana Rocha, Executive Contributor Brainz Magazine
Iliana Rocha is a senior business leader with extensive consulting and coaching experience in all things business. Iliana has been working hand-in-hand with businesses in optimizing their strategy and operations and is now President & Lead Coach at Clubnet Solutions Inc. Her focus is on working with entrepreneurs and small business owners on scaling and transforming their businesses profitably. She is in the process of publishing her first book: Level Up! Low Hanging Fruit to Instantly Improve Your Small Business. Iliana holds a Master of Business Administration (MBA) from Ryerson University, a post-graduate certificate in Strategic Relationship Management from George Brown College, and a Bachelor of Commerce and Finance, with a Major in Economics from the University of Toronto. She is also a certified Project Management Professional (PMP), a certified Agile Coach (ICP-ACC). She is in the process of receiving an International Coaching Federation (ICF) certification as a Professional Certified Coach (PCC).