|Actual Sales Data|
Now that you have all your data, you can calculate the PPM for the Website Project.
|Actual Sales||Actual Costs||Actual Margin($)||Actual Margin(%)|
(As a reminder, the formulas to get Actual Project Profit Margin in dollars and then as a percentage are in steps 4 & 5 above.)
Uh oh. You’ve just discovered that what you feared is true: you didn’t make very much money on this project! In fact, you’re only keeping 2 cents of every dollar earned. Don’t worry, you can and will do better – by setting targets with your KPIs.
How Do You Set a KPI Target?
At this point your PPM is not a KPI yet. You have a metric – a data point that can be measured, but with no action plan attached. To make a PPM KPI, you need to set a good target for it. Your KPI target is the PPM amount you want to reach in the future, relative to where you are now, the Actual PPM.
A good KPI target is:
- Clearly communicated.
- Accurately tracked and measured.
- Reviewed consistently.
Since this is an example, you can travel back in time and start the website project again, using KPIs to help you make better decisions as real life impacts the project.
Your original plan is to have Jian, a junior designer, do all 60 hours of the design work. You know that will cost $3600 (60hrs x $60). With your newly acquired KPI knowledge, you calculate a Project Profit Margin of 16%.
You’ll use this calculated 16% as the KPI target for your Actual PPM. In other words, when the project is finished, you want your PPM to be 16%, just like you’ve planned.
If you are measuring KPIs accurately in real time from the start of the project, you can make a better decision on how to replace Jian when he unexpectedly gets sick. That means it’s time to take a closer look at how to measure a KPI.
How Do You Measure a KPI?
Once you have established a Key Performance Indicator target, measuring a KPI is about consistently collecting the data and running the formulas to see whether you are getting closer to or farther from the KPI target. This usually means having a set of tools and processes in place to ensure that measurement is happening consistently and accurately.
For our website project example, the most critical data to measure is time: the heart of so many critical services KPIs, where “Time is Money.” In order to measure almost any meaningful KPI in a time-based business, you must have your team record and report their time – daily if possible, or by total project hours spent.
It can get complicated to collect and process the data; pulling everything together correctly to make the information useful in real time. This is where a professional KPI dashboard can be a life saver.
How Do You Use a Professional KPI Dashboard?
A KPI dashboard brings your KPIs into one place, allowing you to quickly review progress in real (or close to it) time so you can check your targets and prioritize your time and effort. In order to be an effective tool, a professional KPI dashboard needs to do these things:
- Display the information in a logical way.
- Visually call-out critical areas based on your KPI targets.
- Enable you to drill down quickly into any areas you want to.
- Offer transparency, so you can show KPI information to your team.
There are a lot of “dashboard” solutions out there. Here is what the beginning of the website project looks like in VOGSY.
Early in the project, Jian gets sick after only accomplishing 10 hours of work. You consider replacing him with Aliyah, a senior designer with a much higher hourly rate. You update the Dashboard with the new “Aliyah” plan and immediately see that the Actual PPM dips below 16%.
Because you know that 16% is the Target for the Actual PPM, you foresee how this switch would cause the Actual PPM to drop to 2%. You instead assign Reuben, another junior designer at Jian’s rate. As the project progress you can see that the project will end up around 16% as planned.
You save your profit margin and prevent a stomach-churning rollercoaster plummet.
Great KPIs Lead to Better Decisions
You’ve taken your first steps into the world of KPIs. By keeping track of your team’s time, you were able to establish a Calculated Project Profit Margin which empowered you to track your Actual Project Profit Margin in real time. You can take all the information and build additional KPIs with this same data like Services Profit Margins, Average PPM, Client Profit Margins, and more.
As you start adding more KPIs, you’ll want your “professional KPI Dashboard” to grow with you. There is a type of software called Professional Services Automation (PSA) that can help you automate everything we just covered and a whole lot more. A great PSA solution will let you concentrate on improving your business instead of manually untangling all the data sources and running the numbers yourself.
Of course, I can’t claim to be impartial. VOGSY is a beautiful solution for tracking where your money’s going. Since it’s built on G Suite infrastructure, it’s immediately intuitive and streamlines beautifully into existing practices. We invite you to take VOGSY for a spin and see how you prefer it to the old rollercoaster ride.
Leslie has 20+ years of experience growing tech and services companies as a CEO, COO, and CCO. He is a certified ScrumMaster and Scrum Product Owner. He loves working with companies who want “compassionate operations:” the art of growing in a way that honors your values, talent, customers, and community. He likes his net profit like his coffee, black.