Navigating the complex world of cost management can be a daunting task given the vast amount of data and indicators available. In this article, we shed light on the most important Key Performance Indicators (KPIs), providing a practical guide to effectively orient yourself and optimize your company’s costs.
What are KPIs?
KPIs, or Key Performance Indicators, are key performance indicators that measure how effectively a company is achieving its predetermined goals over a specific period of time. Depending on the sector and specific objectives, KPIs can be numerous: for example, for the sales sector, some KPIs are represented by turnover, number of orders, or conversion rate, while in the marketing sector they can be defined by the email open rate or traffic to the website.
Why are KPIs important and which ones to use in Cost Management?
KPIs are quantitative metrics that measure progress towards specific goals. In the context of Cost Management, they allow you to:
- monitor the trend of costs over time;
- identify areas of inefficiency;
- compare results with industry benchmarks;
- forecast future costs and make informed decisions.
As mentioned earlier, the definition of KPIs depends on the nature of the company, the industry it belongs to, and the strategic objectives. However, some indicators are considered universal in cost management, such as:
- Cost of Goods Sold (COGS): measures the direct cost associated with producing a good or providing a service;
- Selling, General and Administrative Expenses (SG&A): includes all costs not directly related to production, such as salaries, rent, and marketing budgets;
- Return on Investment (ROI): is a fundamental economic indicator that measures the profitability of an investment relative to the initial capital invested;
- Payback Period: measures the time it takes for an investment to generate enough profits to recover the initial amount invested;
- Customer Acquisition Cost (CAC): indicates the total cost incurred for all marketing and sales activities necessary to turn a potential customer into an actual customer;
- Customer Lifetime Value (CLTV): estimates the total economic value generated by a customer over the course of their relationship with the company.
How to implement and effectively use KPIs: the management control
KPIs can be used effectively if inserted into a management control system, i.e. a set of procedures capable of monitoring a company’s activities that allows it to assess whether it is moving towards the achievement of the objectives established during the planning phase. The management control system is therefore composed of the company’s objectives, the measurement of results and an analysis of deviations from forecasts.
Once the objectives to which each KPI is associated have been precisely defined, accurate data collection is carried out, using reliable and up-to-date information systems. Subsequently, the information obtained is analyzed critically and objectively, identifying trends, anomalies and opportunities for improvement. Last but not least, the results obtained must be communicated to all levels of the organization: the effective use of KPIs requires a corporate culture based on data collection and analysis, sharing and continuous improvement, and it is essential that all resources understand the importance of KPIs and are involved in their achievement.
In conclusion, KPIs are indispensable tools for making informed decisions and improving business performance. With the help of advanced software tools such as those offered by Hyperlean, it is possible to achieve more efficient and transparent cost management.
Resources and Sources
Controllo di Gestione: i 5 KPI più importanti da monitorare – Horsa Blog
