In this video tutorial, accounting professors Jim and Kay Stice introduce the topic key performance indicators for a business or company. Using the example of flying a commercial jet, they explain how organizations must analyze many figures. The reporting challenge in an organization is to identify the key measures, to organize them into a framework that makes them easy to remember and understand, and then to design a performance evaluation system that will give people in the organization an incentive to pay attention to these measures.
- Imagine that you are boarding an airplane. You have just struggled to shove your bag into the overhead bin and you are now settling into your seat. - Ah, we're going to use that airplane pilot illustration created by our colleague, professor Monte Swain? - Yep, this is the airplane pilot illustration. - Excellent, okay, our passengers are now settled in their seats. You be the pilot, I'll be the co-pilot. - Okay, I'm the pilot. Ladies and gentlemen, this is your pilot speaking. Welcome aboard our flight from Anchorage to Zimbabwe today. - And this is your co-pilot. Now, up here in the cockpit, we are noticing that there are dozens, maybe hundreds, of dials and lights and numbers.
It's beautiful, but confusing. - Yep, we are overwhelmed with far too much data up here, so your co-pilot and I have come to a strategic decision. We can only focus on one measurement, just one. - Your pilot and I have talked it over and we have decided that there are three measurements up here in the cockpit that seem particularly important: airspeed, altitude, and fuel level. - Yep, those seem pretty important, but we just want to focus on one. So, please, talk amongst yourselves, hold a little election, and decide which one, which single measure you would like us, up here in the cockpit, to focus on during our flight today.
- Those choices, again, ladies and gentlemen, are airspeed, altitude, and fuel level. - So, please talk about it for about five minutes, take a vote, and then let us know your choice, and thanks for flying with our airline today. - Okay, so you're on of the passengers on the plane. After hearing this announcement, what would you do? - Well, I'll tell you what I'd do. I would calmly get up, grab my backpack, remove my carry-on bag from the overhead bin, and then calmly but quickly get off the plane. - Absolutely. We all know that the pilot and co-pilot can't fly the plane just by monitoring one thing.
They have to look at many things. I want them up there monitoring the fuel and the altitude and the airspeed, and lots of other things. - Now, an organization is a complex entity, just like an airplane. You can't run an organization just by looking at one number. - For example, return on equity is a great financial ratio, but a company CEO needs to follow more than just the company's ROE to run the business. What about employee satisfaction? What about percent of production capacity utilized? - As another example, percent of deliveries made on time is a great measure for a package delivery company, but that is not the only thing to measure.
How about fuel efficiency? How about speed of collecting cash from customers? - The reporting challenge in an organization is to identify the key measures, to organize them into a framework that makes them easy to remember, and to understand, and then to design a performance evaluation system that will give people in the organization an incentive to pay attention to those measures.
In this course, accounting professors Jim and Kay Stice explain what KPIs your business should consider in a balanced scorecard, from financial goals to employee and customer satisfaction. They describe how to craft a clear mission statement that complements your KPIs, and how to tie performance to incentives. Plus, get a look at KPIs in action, as Jim and Kay break down a case study examining a trucking company's balanced scorecard.
- The importance of KPIs and measuring performance
- Financial goals and measure
- Customer needs and satisfaction
- Employee growth
- Creating an effective mission statement
- Linking measurements and rewards
- Examining a KPI case study