Excel 2010 How To Show Formulas In The Whole Sheet Are Visual Formats For KPI Models Important? Using Natural Thought Processes to Promote Clarity

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Are Visual Formats For KPI Models Important? Using Natural Thought Processes to Promote Clarity

Can you make immediate sense of a table of statistics?

Accountants seem to have this talent. For the rest of us mere mortals, lists are useful for shopping, and even that is a dubious proposition for the blokes among us.

What we need is a diagram that shows us the relationship between the numbers. That’s because we’re naturally good at understanding the relationships between physical objects. It is hard wired in the human brain; It is a basic survival characteristic. It just comes naturally.

This is why the presentation format of the KPI model is so important.

The KPI model is presented as a diagram. It doesn’t matter if the diagram is drawn on a sheet of paper or as an Excel spreadsheet on a computer screen. We understand the relationships it describes, the relationships between numbers.

Visual format is important for another reason. If I ask a group of people to describe what drives their business, they can do it. If I ask them to draw it they can do it.

If I ask them to explain the same using their financial accounting statements, they usually struggle.

There are two reasons for this. Understanding columns of data does not come naturally to humans; It’s learned, and most of us haven’t learned it. More importantly, it’s not live in the world when we’re running a business. We live in a world of interactions with people, a world of decisions, customers, suppliers and pressures of unexpected events. Accounting reports arrive after the event, sometimes long after, is too long to influence the decisions that create the results they depict.

The moment-to-moment connections between the decisions we make, and the economic impact on business performance are not top of mind at the moment we have to make them. We are responding to other priorities. For many people working at the operational level in business, these relationships are never explained. All of my experience suggests that day-to-day operational decisions have a profound impact on the performance of most businesses. It may not be obvious in the rarefied atmosphere of the boardroom, but it’s always there, in the background.

Operational decisions made with a good understanding of the impact on business profitability will always be superior to decisions made in ignorance. If this level of understanding between supervisors can be achieved, a major impact on business performance will be achieved.

Can it be solved?

A good solution deals with all these problems. It can be really simple.

When a small group of people work together to sketch out their KPI model, everyone gets a new perspective of the real world in which business operates. Supervisors learn how their decisions affect profits, and how errors compound and multiply through the system.

Senior managers learn how decisions made around the boardroom table affect shop floor operations, and understand the unintended consequences of systems that seem rational at first but have the effect of distorting decision-making processes. They are able to review and make simple changes to optimize the entire system.

Working together to develop and test the model communicates the hierarchy of KPIs and enables them to be defined across functional areas and functions of the business to achieve a “whole business” perspective. People understand how and why efforts to increase productivity in one area can dampen productivity in adjacent areas.

Trying to maximize everything rarely optimizes the entire business. The law of unintended consequences always prevails.

If we give people a visual framework they find the theory simpler to understand and easier to apply in practice. It doesn’t matter whether the visual is a hand-drawn diagram on a large sheet of paper, or an Excel workbook with different views of the business in linked worksheets. Important things are:

  • The data is presented in two boxes with the description above and the number below.
  • Links between 3,4 or 5 boxes are shown with lines and arrows. Arrows always run from left to right on the page. Start with the entire tapestry and tease the strands working to the right.
  • A linking formula is usually shown for each link +,- x,/. That’s as hard as math.
  • Color coding can help people follow links; I use blue for revenue streams, pink for cost streams etc.

If you want Google KPI models only examples of how to build a model and you can find my hand-drawn explanations or very useful Excel models, which you can use as a basis for your own development.

What is the difference between a KPI model and a KPI dashboard?

My take on this is that dashboards also present data in graphic format, but many do not show links between KPIs, or performance metrics between KPIs that are part of the picture, but not important enough to rank as KPIs. They are good for showing KPI trends, but you can also do this in a KPI model, using the charting tools in Excel, and charting the trends over time of the most important drivers of business returns.

A KPI dashboard is a great way to understand complex datasets. It just works differently.

A summary of the reasons for using the KPI model graphic format.

People interpret graphic patterns as easier to breathe, and their confidence increases. They believe in numbers. They explain the flow of activities and $ through the system like blood flowing through their arteries. The diagram reflects their personal map of the system in which they work. As their sense of liberation expands, their creative thinking blossoms. Their decisions are improved because they can understand the impact of alternative decisions on the system they are working on.

I believe it is due to the flow of new ideas, to improve business performance, or even to outwit competitors.

When I run a KPI modeling workshop, I know that amazing results will follow. I hope I’ve been able to explain to you some of the reasons why this happens all the time.

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