What You Can Measure You Can Manage

You will all be familiar with the phrase “free measure and quote” in advertisements for everything from flyscreens to garage doors. The customer perceives free as a benefit while the retailer recognises that the measure is an absolute requirement if they are to get the sale.

Similarly in business the need to understand the dynamics of your business and be able to measure and then manage the key economic drivers that affect its success are critical.

Have you ever stopped to think what those key factors are for your business? Have you ever developed a set of performance targets that need to be met or exceeded if your business is to be as profitable and dynamic as you would want?

Take a moment now and list down 3 critical elements of your business that can be measured. You might start with areas of the business that you feel could be better managed or that you simply have concerns about.

Some of these could include:
• Productivity of your team
• Sales conversions
• Poor cash flow from customers not paying on time
• Too much money tied up in Work In Progress

Having identified the problems and then established a measurement for them – the task of developing strategies to improve these dynamics is a lot easier for you and your team.

Now we have all heard of “paralysis by analysis” So the idea isn’t to start measuring all the factors that may have an impact on your business. The amount of coffee the team drinks each day or the difference between fancy or plain biscuits to the overheads are unlikely to be of concern. The key to moving your business forward is to identify the critical components to get right.

We’ve found that by helping to identify, measure and manipulate the key economic factors in our client’s businesses they then begin to show very fast signs of improvement in profitability. More importantly the installation of consistent measurement and monitoring aligned with strategies to improve the actual performances are foundations for improved growth and a culture of continuous improvement and purpose throughout your company.

In recent years we’ve had some interesting examples of measuring key performance indicators that have made a huge impact on business.

For example one professional practice was writing off some $300,000 worth of fees as a result of a combination of factors: 1. Under quoting by a partner 2. Inefficiency in completing jobs 3. Partners writing off fees as they didn’t think clients would pay. While the first issue could be directly attributed to one individual – the establishment of cost and timing norms for the performance of certain functions along with attention to work in progress on a monthly basis would have overcome the problems long before we were brought in to help.

Another firm with cash flow problems had almost half a million dollars tied up in work-in -progress - when the real number should have been $200,000. Quite obviously work in progress was for this company a critical economic factor but it had not been identified, measured and managed for a number of years.

Generally we’ve also found that a lot of businesses only monitor there progress by cash at bank or at best monthly financial statements. We suggest valid measurements that measure key performance drivers in marketing, operations and human resources will identify problems and indeed opportunities long before dry financial statements.

The frequency of monitoring these key performance indicators varies from business to business. However experience shows that weekly and separate monthly financial management monitoring is a must. If you monitor your key drivers weekly, this gives you an opportunity to create history 50 times per year. Consider this against annual financial reporting which is just reporting on history.

Measurement requirements are often peculiar to certain types of business for example:-

• Billable hours vs. budget
• No. of proposals and success rate
• Number of jobs produced on time and in budget
• Debtors, Work In Progress, Cash at Bank

Have a think about monitoring your key economic drivers and establish ways to measure and monitor their performance. Then simply establish objectives and strategies for improving your performance in these areas.


David Wolrige