How to choose the KPIs for your management dashboard

It’s Monday, and the management meeting opens with a dashboard of 40 figures: sales this month, sales this year, sales by branch, social media followers, website visits, number of quotes, total stock. Nobody discusses any of them in particular, because none of them says whether you’re doing well or badly, or what to do on Tuesday. In the end, the most important decision of the day is made on the usual gut feeling.

The problem isn’t a lack of data. It’s that the indicators were chosen without starting from a question. This guide gives you a method to build a short, useful dashboard that you can run even in a spreadsheet.

From objectives to indicators

An indicator only makes sense if it measures progress toward something you want to achieve. So the right order is:

1. Write down three to five objectives for the year in plain, verifiable language: “collect faster”, “improve gross margin”, “reduce stockouts”. If an objective can’t be verified, it’s still a wish.
2. For each objective, ask: how would I know I achieved it? The answer is usually an outcome indicator.
3. Then ask: what has to happen first for that to occur? That answer gives you the process indicators, the ones you can move this week.
4. Define each indicator on a sheet (see below), with formula, source, frequency, owner and target.
5. Cut. If an indicator wouldn’t change any decision even if it doubled, take it off the management dashboard. It can live in an operational report.

Outcome and process indicators

Outcome indicators (also called lagging) show what already happened: gross margin, sales, days to collect. They’re what matters, but they arrive late: when the quarter’s margin comes in poor, the quarter is already over.

Process indicators (leading) measure the actions that anticipate the outcome: percentage of overdue invoices with collection follow-up, quotes sent within 24 hours, key products below the reorder point. They move earlier and depend directly on what your team does.

Objective	Outcome indicator	Process indicator
Collect faster	Days sales outstanding (DSO)	% of overdue invoices followed up within 3 days
Improve margin	Gross margin %	% of sales with discounts outside policy
Reduce stockouts	Stockout rate	% of key products below the reorder point with no purchase order

A good dashboard combines both: the outcome tells you whether you’re on track; the process tells you what to fix.

How many indicators to have

For a management dashboard, a practical rule is one or two outcome indicators per objective and one or two process indicators. With four objectives, that’s between 8 and 16 figures, and it’s almost always better to stay at the low end. If the dashboard doesn’t fit on one screen without scrolling, it has too much.

Each department can have its own, more detailed dashboard. The management one is the summary.

The definition sheet for each indicator

Two people who calculate “margin” differently will argue about the number instead of the decision. The sheet prevents that. Each indicator needs, at a minimum:

• Name and the objective it serves.
• Exact formula, including what’s in and what’s out.
• Source of each data point: which report, which system, which ledger account.
• Frequency of measurement and cutoff date.
• Owner for measuring and owner for improving (not always the same person).
• Target and, if useful, traffic-light thresholds (green, yellow, red).

Sample sheet: days sales outstanding (DSO)

Field	Definition
Objective	Collect faster
Formula	DSO = (Accounts receivable at close ÷ Credit sales for the period) × Days in the period
Source	Accounts receivable balance from the general ledger; credit sales for the period, excluding cash sales
Frequency	Monthly, with cutoff on the last day of the month
Measured by	Accounting
Improved by	Collections lead
Target	30 days or less; yellow between 31 and 40; red above 40

Worked example. Suppose that at the end of a quarter (90 days) you have Bs 600,000 in accounts receivable and you sold Bs 1,800,000 on credit during that quarter:

DSO = (600,000 ÷ 1,800,000) × 90 = 30 days.

Now suppose that the next quarter credit sales drop to Bs 1,500,000, but receivables stay at Bs 600,000:

DSO = (600,000 ÷ 1,500,000) × 90 = 36 days.

Even though the receivables balance didn’t change, it now takes you six more days to turn sales into cash. That’s where the process indicator comes in: if the share of overdue invoices followed up within three days fell from 80% to 55%, you know where to look.

Note the formula: using total sales instead of credit sales makes DSO look better than it is. That’s why the sheet states what’s excluded.

The Balanced Scorecard in brief

The Balanced Scorecard (BSC) groups objectives into four perspectives so the dashboard doesn’t look only at money:

Perspective	Question it answers	Sample indicators
Financial	How do the owners see us?	Gross margin %, DSO, operating cash flow
Customer	How do customers see us?	Repeat purchase rate, complaints per 100 orders
Internal processes	What must we excel at?	Orders shipped complete and on time, stockouts
Learning and growth	How do we keep improving?	Training hours per person, staff turnover

The core idea is cause and effect: trained people improve processes, better processes make customers happier, and that ends up in financial results. You don’t need to implement the full BSC to benefit from it: just check that your dashboard has at least one indicator in each perspective.

Common mistakes

• Vanity metrics. Followers, visits or “number of quotes” go up and look good, but they don’t tell you whether you earn more or collect sooner. Ask yourself what decision you’d make if that number fell by half.
• Too many indicators. Forty figures are the same as none. The committee’s attention is limited.
• Outcome indicators only. You find out about the problem when it’s too late to fix it.
• Formulas with no owner. If each department calculates its own way, the meeting is spent reconciling numbers.
• Targets with no basis. A target should start from your recent history and what’s feasible with your resources, not from a round number.
• Measuring without acting. Every red indicator should have an action, an owner and a review date.

Checklist before you present your dashboard

• Every indicator is tied to a written objective.
• Every objective has outcome and process indicators.
• The dashboard fits on one screen.
• Every indicator has a complete sheet: formula, source, frequency, owner and target.
• All four BSC perspectives have at least one indicator.
• It’s defined when the dashboard is reviewed and what happens with red indicators.

Moving it into a system

A well-organized spreadsheet is enough to get started. When you want targets and measurements recorded by objective and period, an ERP like MKA lets you load indicators by BSC perspective, weighted, manual or calculated, with bulk-loaded targets and a trend chart (see Strategy BSC).