Basing business decisions on data is undeniably essential for long-term success and growth, but with the massive amounts of data currently being produced, much of the value is going to waste. There is more data available than ever before and a growing offering of automation tools to match data processing demands. As the market continues to shift it is challenging to pinpoint any one indicator of business success. To narrow it down, there are four vital Key Performance Indicator (KPI) categories that industrial automation businesses should track to promote successful outcomes. Implementing a dashboard solution that allows owners to easily view key metrics saves them time, increases owner confidence, and allows for better informative decisions.
1. Project Performance
Observing overall project performance involves setting and maintaining a target job profitability margin. These calculations should factor in the gross profit margin, which is the cost of goods sold (COGS) subtracted from the total revenue. Another KPI to consider in correlation to those profit margins is the percent of complete by project. This will ensure profit is recognized as expenses are incurred and can also be used to identify when a project is starting to go over budget.
In order to monitor other necessary KPIs that impact project performance, businesses should regularly review projects by contribution margin, delivery date, and status. Improving project performance can also be achieved by reducing overtime costs and the cost by jobs while still maintaining utilization targets to maintain profitability.
What to focus on?
- Budgets
- Margins
- Deadlines
2. Revenue & Growth
To predict future growth, it is paramount to review the sales opportunity pipeline. This tool is used to target prospective buyers and visualizes where sales are stagnating. A study conducted by the Harvard Business Review found that companies that defined a formal sales process earned 18% more revenue than companies with no formal parameters for their sales pipeline. Managing the sales pipeline is comprised of checking the following sources:
- Backlog of opportunities
- Sales calls – length of call, number of calls to close a deal, and improving lead quality by dropping dead leads
- Quoted revenue – organized by lead stage and likelihood
- Booked engagements
What to focus on?
- Pipeline
- Backlog
- Sales
3. Financial Management
Financial management entails calculating the value of the business. More specifically, that includes tracking 12 months of revenue as well as gross EBITDA and margin. EBITDA is calculated by excluding tax, interest, depreciation, and amortization. Reviewing the line of credit (LOC) balance and availability will be crucial to maintaining low credit utilization.
Working capital management is centered on using company resources more efficiently by evaluating the current use of assets such as inventory, accounts receivable, and accounts payable. This practice is fundamental to making informed cost-saving decisions and avoiding liabilities. Managing working capital entails maintaining the working capital to pay for operational expenses with room for emergency equipment repairs and seasonal inventory fluctuations to avoid bottlenecks.
The net change in cash is the balance increase or decrease during an accounting period for a company, and it is important to keep watch to prevent it from running out. This effort is supported by reports like accounts receivable aging which categorize a company’s accounts based on the length of time an invoice has been outstanding in order to gauge the financial health of a company’s customers. An accounts payable aging report is another accounting document that highlights the due dates for the bills that a business needs to pay. These two reports will help determine the future cash flowing in and out of the business.
What to focus on?
- Position (Cash, Accounts Receivable, Work in Process, Inventory, Accounts Receivable, Line of Credit)
- Working Capital Trends
- Results (Margins and earnings)
4. Employees
Even in industrial automation companies, there are plenty of human components to consider. Employees need to be monitored to optimize the efficiency of their work and overall morale. Considering metrics to understand productivity, needs, and sentiment can be fruitful for maintaining a workforce.
What to focus on?
- Utilization
- Turnover
- Vacation time used
- Attendance headcount
- Employee satisfaction survey results
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Our accounting and consulting teams are a resource to help identify the KPIs that matter. Reach out to Clayton & McKervey for assistance with identifying data sources and implementing successful data analytics solutions for your business today.
