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What would you think if your doctor ordered surgery without any tests, your accountant gave you an amount to pay the IRS without any calculations or your attorney created petitions for your case without any information? Many real estate companies are managed with only limited information to guide decision making. Just as a doctor in a physical would take your pulse, blood pressure and other tests to determine the performance of the body, Key Performance Indicators (KPI's) are the significant numbers that management must track in a company. When monitored closely, the company can make key adjustments that will aid growth and positioning with few surprises. KPI's are a set of measurements that paint a picture of the company's health. These are inter-related ratios, measuring key activities and results. As a consultant, KPI's are a favorite tool for evaluating the health and potential of companies. Just like the rhythms of the body, the KPI's of a company cannot be isolated to form a diagnosis. Unlike financial reports that measure only what has occurred once it has become reportable as dollars and cents, the KPI reports include activities, performance, market and financial data with defined relationships that allow projections, indicate changes, and can be used to model the impact of the changes. Measurements taken should compare both monthly and year-to-date performance with ratios created against goals set and the marketplace. The ratios become a quick benchmark that can indicate well being or specific actions needed. Few companies will take the time or effort track the information or evaluate the data unless the process is automated. Spreadsheets are simple tools but far more time consuming than database derived information. If you are currently using a system for tracking such data, the data for the reports is simply pulled into the customized format. The areas of measurement should include the following:
Each of these areas can be broken down into greater detail by profit center, market, or even groupings within the office. The data once accumulated and compared begins to not only tell a story but additionally paint a path of action. Examples of KPI's at Work: Pendings - The number and size of deals in the drawer can indicate the timing factors of a market. If the ratio between the number of sides pending in the drawer against the total closed for the previous year is between 35 - 40 % consistently and you are running a 60 to 90 day closing time period, your business should close stronger than the previous year. If the time period extends or shortens, it will impact the ratio needed to be healthy. Additionally, if the number falls below 20%, and the time period has not shortened to a 30 - 35 day closing period, the business may be headed for financial problems. Other measurements will also impact the analysis such as cancellations, size of transactions and distribution of business. Business at Risk - The production of the top two producers in each of your offices are one of the areas that we consistently measure called "Business At Risk.." It is not at all unusual for the effects of one's production or lack there of to influence the other. It is also not unusual that if one leaves the company, so does the other. Hence if 20% of the production of the company is from these two individuals, the impact of any change would be felt immediately by the company and the impact would also effect almost every other KPI in the company. Healthy companies set business objective for the production and producers needed in the company to all no more than a 10 - 12 % impact by business at risk. It does not take long to see how a good set of KPI's can strongly influence decisions and actions. If you are not using automation tools to do the tracking and calculations, start with a smaller set of KPI's. Even a limited group of areas measured will bring important results. Creating a great company is a lot like keeping your body in good shape. Hard work and watching the numbers. |
