KPI dashboard: choose the few figures that lead to decisions

The monthly management meeting opens with thirty-six charts. The discussion turns to revenue and margin as always, and the meeting ends without a decision that the other charts made possible. The dashboard looks thorough; mostly it shows what was easy to export.

In a global survey by MIT Sloan Management Review and BCG, 60% of managers said they needed to improve their KPIs (source: MIT Sloan Management Review and BCG, February 2024). The cure is rarely more data. A KPI dashboard is the agenda of the conversation about strategy, so every figure on it must be able to lead to a decision: carry on, adjust or stop.

What is a KPI, and how is it different from a metric and a target?

A metric becomes a KPI when a strategic choice depends on it. The test: would the strategy be at risk if this figure got worse? If not, it belongs in the financial analysis or a department report. Keep the KPI and its target apart too. The KPI can stay the same for years, while the target moves with the business.

Leading and lagging indicators: what is the difference?

Robert Kaplan and David Norton, who developed the Balanced Scorecard, argued that financial measures report the results of past actions. They asked for a balance between the outcomes you want and the performance drivers of those outcomes, now usually called lagging and leading indicators.

How many KPIs should a dashboard have?

Fewer than you think, and different ones at each level.

A Firmfocus rule of thumb, not a research standard.

The levels should connect. Each KPI on a lower level explains one on the level above: conversion on the management dashboard splits into conversion per channel and per product group. That tree turns a red figure at the top into a question someone can answer. The Balanced Scorecard, the OGSM model and OKRs each give the tree a structure; the dashboard makes it visible.

Setting targets that help instead of harm

George Doran's SMART checklist (Management Review, 1981) is still a good test for the wording of a target. In his original version the A stood for assignable: one named person owns it. Targets also have side effects. Lisa Ordóñez and colleagues at Harvard Business School argue that the harm of goal setting has been largely ignored: a narrow focus, more unethical behaviour, distorted risk-taking and less intrinsic motivation. Dose targets with care and watch for side effects.

What happens when the number becomes the goal?

In a paper from 1976, the social scientist Donald Campbell warned that the more an indicator is used for decisions, the more it is exposed to pressure to corrupt it. The anthropologist Marilyn Strathern later summed up the related Goodhart's law: "When a measure becomes a target, it ceases to be a good measure." In a business it looks like this:

• On-time delivery rises: because planners quote longer lead times.
• Customer satisfaction rises: because the survey only goes to customers whose order went well.
• The quarterly revenue target is hit: by pulling orders forward with discounts, so the next quarter starts empty.

You can make gaming pointless. Pair measures that keep each other honest: speed with quality, revenue with margin, utilisation with repair time. Look at the spread behind an average. Ask owners to explain what moved the figure. And never tie a bonus to one number.

Review rhythm: from report to decision

Agree a trigger value for each KPI: the point at which it turns red. Green needs no discussion, amber gets a line of explanation from its owner, red gets a decision.

1. 01

   Close on a fixed day

   Figures are final on the same working day each month, with the date of the last update on the dashboard.

2. 02

   Owners explain

   Each owner of an amber or red KPI writes what moved the figure and what they propose.

3. 03

   Discuss the exceptions

   Start with the lagging results and trace them back through the leading indicators.

4. 04

   Decide and record

   Every item ends with a decision, an owner and a date; the next meeting starts by checking them.

5. 05

   Prune every quarter

   Remove any KPI that led to no decision in three months.

Data quality: one definition, one source

• A KPI card per indicator: name, formula, data source, owner, frequency, target and trigger value, so two people calculate the same number.
• One source per figure: the accounting package, ERP or booking system, not three spreadsheets.
• Like with like: seasonal figures against the same month last year; annual industry figures against a rolling twelve-month figure.

Worked example: the monthly dashboard of an equipment rental company

Tarnby Equipment Hire is a fictitious rental company with three depots and 46 staff. Its strategy is to grow through framework agreements with regular contractors and to keep the fleet busy rather than buy more machines. At Tarnby's rates the fleet would earn €1,000,000 a month if every machine were out every working day, so each point of time utilisation is worth about €10,000 of monthly revenue.

Fictitious Firmfocus example. Green = on or better than target; amber = off target but not past the red trigger; red = past the trigger. Amounts in euro; the logic works in any currency.

The meeting starts with the red revenue and follows the chain back. Revenue is €70,000 below target, which matches the seven points by which utilisation is below its target of 65%. Utilisation fell because machines spend too long in the workshop: repair turnaround rose to 5.2 days after a mechanic at the north depot left. Quotes and framework customers are on track. Tarnby does not have a demand problem; it has a workshop problem.

• Workshop: a temporary mechanic for three months, heavy repairs to the central depot. Owner: the workshop manager. Check: turnaround below four days in November.
• Fleet: no new machines until utilisation has been above 62% for two months in a row. Owner: the managing director.
• Debtors: amber, so the finance lead explains and no extra decision is needed.

Two KPIs took most of the meeting, as they should. Once a year Tarnby also sets its margin and cost structure next to the industry figures for equipment rental, to see whether its own margin target is ambitious or merely comfortable. Turning such a comparison into targets is the subject of benchmarking.

Pitfalls with KPIs and dashboards

• Vanity metrics: visits and followers look good but rarely lead to a decision.
• Too many indicators: every extra tile dilutes attention.
• Gaming: a KPI that matters more than what it measures starts to lie.
• Only lagging figures: you see the problem in the annual accounts, too late to steer.
• No owner: a red figure without a name next to it stays red.

Small business or larger organisation

The dashboard sits among the other tools in execution and control, and every strategy topic is under Strategy.