Critical Success Factors (CSF’s) are those things that must be controlled to make (keep) your business successful. They also have specific outcomes –set by you- to allow you to know whether you are achieving your target.
They cannot, however be managed because they are not ‘activities’. To achieve a specific CSF, you must first, identify what makes up that CSF. These are your Key Performance Indicators (KPI’s) and they can be both measured and managed.
What factors do you need to get right in any business to be successful?
1. Sales revenue – How Much? – Without Sales Revenue nothing really can happen.
2. Profits. What percent of gross profit? What percent of pre-tax profit?
3. Cash flow. What are your limits – It takes positive cash flow to run a successful business
4. Marketing. What are your products/services/customers are your ‘A’ priorities
5. People. How many do you need in each area
6. Communications. How/when do you get the word out, both internally and externally?
All these Critical Success Factors have measurable outcomes. Develop your own CSF’s followed by Key Performance Indicators
An Example: CSF –To not exceed Line of Credit of $200,000 KPI’s
Account receivable : must be under 45 days Payroll: no more than 30 people on the payroll in any one month Accounts payable: must average greater than 30 days Inventory: level must not exceed $80,000 All capital assets must be financed 100% Any other items that would impact cash flow? Loan repayments? Holdbacks?
Once you set up your list of KPI’s, you now need to get and review – weekly reports. Do you have these established within your operations? If not, you will never manage what you are unable to measure. When all the KPI’s fall into line, you know that you are in good shape – out of line, then you are headed for trouble.
In Exhibit 1, we show examples of Key Performance Indicators for each of the Critical Success Factors
Set up the range of KPI that you think are feasible. They will change from time to time. Keep them current and viable. Ensure the stretch to meet a specific KPI will not place the Company at risk. Share all KPI with those who have any impact on their achievement.
