AoS 1: Reviewing Performance and Key Performance Indicators Part 1

Reviewing Business Performance through KPIs

  • Key Performance Indicators (KPIs): Specific criteria used to measure a business’s efficiency and effectiveness in achieving its objectives.

  • Effectiveness: The degree to which a business has successfully achieved its stated objectives (focused on quality).

  • Efficiency: How well a business utilizes its resources to achieve objectives (focused on productivity).

  • The Evaluation Process:

    1. Establish objectives (What to achieve?).

    2. Develop strategies (How to achieve them?).

    3. Evaluate performance (Determine if objectives were met using KPIs).

Categorization of Key Performance Indicators

  • Financial KPIs: Measure monetary health and market standing (e.g., Net Profit Figures, Percentage of Market Share).

  • Operational KPIs: Measure process efficiency (e.g., Rate of Productivity Growth, Level of Wastage, Number of Workplace Accidents).

  • Customer-Related KPIs: Measure satisfaction and market acceptance (e.g., Number of Sales, Number of Customer Complaints, Number of Website Hits).

  • Human Resource KPIs: Measure workforce stability (e.g., Rates of Staff Absenteeism, Level of Staff Turnover).

Core Performance Metrics: Definitions and Calculations

  • Percentage of Market Share: Represents the percentage of an industry's total sales earned by a particular company over a specific period.

    • Calculation: Company SalesTotal Industry Sales×100\frac{\text{Company Sales}}{\text{Total Industry Sales}} \times 100

    • Example: 30,000100,000×100=30%\frac{30,000}{100,000} \times 100 = 30\%

  • Net Profit Figures: The amount earned after deducting all expenses from total revenue. Known as the "bottom line."

    • Calculation: Total Revenue−Total Expenses=Net Profit\text{Total Revenue} - \text{Total Expenses} = \text{Net Profit}

  • Rate of Productivity Growth: Measures efficiency trends in the production process.

    • Calculation (Productivity): OutputsInputs\frac{\text{Outputs}}{\text{Inputs}}

    • Calculation (Rate of Growth): New Rate−Original RateOriginal Rate×100\frac{\text{New Rate} - \text{Original Rate}}{\text{Original Rate}} \times 100

    • Case Example: Increasing from 12.512.5 meals per hour to 1515 meals per hour results in a 20%20\% increase.

  • Number of Sales: Tracks transaction volume to indicate market popularity.

    • Note: Increasing sales does not always guarantee increased profit if costs or price reductions (e.g., selling pots of beer at 1.001.00 instead of 5.005.00) offset the gain.

Questions & Discussion

  • Practice Short Answer: Define percentage of market share and explain how it is calculated (2 marks).

    • Response: Use the definition and the formula involving company sales divided by industry sales.

  • Strategy Identification: Identify two strategies to respond to falling net profit figures.

    • Response: Options include cost-cutting, marketing, quality strategies, or investment in technology.

  • Applied Case Study: Emma Watkins, General Manager of Timberman’s in Bacchus Marsh, wants to evaluate a new radio advertising campaign. Justify two KPIs she could use.

  • Critical Thinking Prompts:

    • Why should a business evaluate its performance?

    • What happens when performance fails to meet, meets, or exceeds customer expectations?

  • Student Self-Check:

    • What if a week resulted in 18001800 meals using 160160 hours of labour?

    • What are the two biggest business expenses in a typical Profit and Loss statement?