Key Performance Indicators
We’ve previously discussed the importance of running your agricultural enterprise like a Fortune 500 company. Our last discussion focused on consultants and the importance of a non-biased, outside, experienced professional’s view.
This week we would like to discuss key performance indicators. Many large and small companies will address and track KPIs. A key performance indicator is a value used to monitor and measure effectiveness. KPIs are intrinsically linked to an organization's strategic goals, managers or owners will use the indicators to assess whether they're on target as they work toward those goals.
For example, a sales team might track new revenue, total revenue, new customer capture, average deal size, and deal pipeline size to assess progress toward corporate revenue targets. Or Human Resources department will measure employee turnover among other related metrics. These indicators will be monitored over time and adjustments to plans and programs will be made to improve the KPIs in support of the firm's strategic goals.
Put simply, KPIs are like a report card that can be used to highlight weaknesses in an operation. In a cow/calf operation the KPIs are based on production and financial data. Each indicator will vary with the specific operation. As some places may be involved in multiple enterprises that contribute to the financial well-being. Below are some key indicators that are a good starting point.
Pounds Weaned per Exposed Female
Revenue per Breeding Female
Nutrition Base Expense as a Percent of Total Expenses
Labor and Management Expense as a Percent of Total Revenue
Operating Expense as a Percentage of Total Revenue
Net Income Ratio
Cost per Cwt. of Weaned Calf
Current Ratio - reflects a ranch’s ability to pay short-term liabilities
Total Investment (market basis) per Breeding Female
Debt per Breeding Female
Equity to Asset Ratio (market basis)
Asset Turnover Ration (cost basis)
Rate of Return on Assets (market basis)
There may be other indicators as mentioned earlier, these thirteen listed above will provide a good starting point and give an adequate snapshot of the financial and production performance of the operation. Managers and/or owners will be able to develop strategic goals to hit their target levels for each indicator.