Which KPIs belong in a management report?
A good management report does not show a lot; it shows the right things, with the same definitions every month, in a comparable way. Choosing indicators starts with the decisions the company has to make.
A KPI (key performance indicator) is a regularly measured and tracked indicator that shows how far a company is reaching its goals. The purpose of KPIs in a management report is not to measure everything but to direct management’s attention to where action is needed.
The most common mistake is trying to improve a report by adding indicators. A report with fifty indicators highlights none of them.
Three questions for choosing indicators
- Which decision does this indicator serve? An indicator not tied to any decision should be removed.
- Who can influence it? An indicator with no owner moves nobody to act.
- When does it raise an alarm? An indicator without a threshold cannot be interpreted.
A four-layer framework
The framework below can form the skeleton of a management report for most companies. A few indicators per layer are enough.
| Layer | Example indicators | Question answered |
|---|---|---|
| Growth | Sales (with volume and price effects), new customers, customer churn | Are we moving forward in the market? |
| Profitability | Gross margin, EBITDA margin, contribution by product/customer | Is growth creating value? |
| Cash and working capital | Operating cash flow, receivable/inventory/payable days, cash conversion cycle | Is profit turning into cash? |
| Financial health | Net debt/EBITDA, debt service coverage, liquidity | Is the structure sustainable? |
Sector-specific operational indicators (capacity utilisation, cost per unit, order fill rate and so on) can be added to this framework, but they should not replace the financial layers.
Definition: as important as the indicator itself
If the same indicator gives different numbers to different people, the problem is the definition. Does “sales” exclude returns, include discounts, and which date is it recorded on? Writing a one-page definition for each indicator (formula, data source, owner, threshold) moves management meetings from arguing about numbers to discussing causes.
Comparison: what makes a number meaningful
An indicator says little on its own. It gets its meaning from three comparisons:
- With the budget or forecast: where are we against plan?
- With the previous period or the same period last year: which way is the trend going?
- With the threshold: is action needed?
Explaining the cause of a variance is worth more than reporting it. I describe the method in the variance analysis section of the FP&A page.
Format of the report
- A one-page summary: the 6–10 most important indicators, colour-coded against thresholds, with a short commentary.
- Then detailed pages by layer.
- The same structure and order every month: readers should know where to look.
Rebuilding the report by hand every month causes both delays and errors. Fixing the template and linking it to its data source makes the report a natural output of the monthly close.
You can see this approach applied in the Management Reporting & KPI System.
Frequently asked questions
How many KPIs should a management report have?
Six to ten indicators on the summary page are enough for most companies. Detailed pages can carry more, but each should be tied to a decision.
Is a KPI the same as a financial ratio?
Not every financial ratio is a KPI. A ratio becomes a KPI when it is linked to a target, assigned to an owner and tracked regularly.