Create Superior Business Metrics


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Create Superior Business Metrics

  1. 1. Create Superior Business MetricsBusiness metrics measure an organizations key activities and performance. The purpose of businessmetrics is to manage those activities more effectively. An organization cannot effectively manage whatisn’t measured. When business metrics are properly developed, implemented and monitored, theyprovide the following benefits:  Focus – By defining and implementing proper metrics, the focus will be on the most important activities of a business. This will allow the business to ignore other distractions and become much more efficient.  Superior Insight – By monitoring the metrics, the business can quickly spot trends and variances, opportunities and threats. This can provide key insights to both internal and external factors affecting the business.  Superior Decision Making – Metrics provide an important framework for decision making. They provide quantitative information in a logical and straightforward manner. Decision making becomes much more objective.Creating & Implementing Superior Business MetricsWhen creating and implementing business metrics, here are some critical factors to consider:1) Management Involvement. Management creates business strategy and must be involved in how the metrics are linked to it. It is critical that executive leadership actively supports metrics development and implementation. When management supports this effort, actions based on the metrics will benefit the entire organization.2) Identify Your Business Goals. These goals may be focused on revenue, profitability, growth, productivity, expense management, product line analysis, etc.3) Link Metrics to Your Strategy. Make sure that your metrics support and are linked to your strategy. When metrics are not linked to strategic objectives, it results in loss of focus and wastes internal
  2. 2. 4) Define Your Metrics. For each business goal determined, identify appropriate metrics that will help you track your progress to success. a) Monitor Only Important Activities. Make sure that your metrics relate to regular activities and processes. Assess the most important factors to measure and then make sure that the information generated is relevant. Your goal is improvement and your metrics must reflect that. b) Keep Metrics Simple. Metrics should clearly communicate the information that you need. Direct information should be acquired in order to take direct action. Avoid creating complex measurements that are difficult to use. c) Limit the Number of Metrics. As a rule, implement no more than 10 metrics at a given time. This is because the purpose of metrics is for fast feedback. If the organization gets bogged down in measurements, time and focus can be lost. Dont inundate the organization with numerous metrics that impede the entire activity stream. d) Focus on Quantifiable Metrics. When creating business metrics, avoid vague, qualitative metrics. Qualitative metrics are difficult to measure with hard numbers. Instead, look for quantifiable components of an activity. e) Determine Leading vs. Lagging Metrics. Many metrics focus on results and look backwards. Your portfolio should also include a blend of metrics that are leading indicators. f) Metrics Must Respond Quickly. Your measurement systems must provide prompt feedback, so you can identify and correct problems as soon as possible. Metrics should not be cumbersome or take a long time to yield information. g) Choose the Appropriate Frequency of Measurement. Measurements may take place daily, weekly, monthly, quarterly or annually. Making a timely decision as related to a specific metric should influence the frequency.5) Communicate Metrics to Employees. Once key metrics have been created, communicate them throughout the organization. Then, employees can contribute and help improve the metrics.6) Benchmark Your Current Performance. Once you have established your metrics, you need to measure how your business is currently performing. By establishing the current value of each metric, you create a baseline and will be able to track improvements in the
  3. 3. 7) Develop a System to Monitor and Report Metrics. You may need to add new business processes that will help you manage and report your metrics. However, avoid metrics that create excessive overhead.8) Review Your Metrics. With the appropriate metrics, you gain greater insight into which strategies work and which dont.9) Make Corrective Actions. Once you have feedback, review the metrics and take steps to improve your results on a timely basis.10) Reevaluate Metrics Periodically. Because business priorities can change over time, metrics will need to be reevaluated and adjusted accordingly.11) Celebrate Successes. When metrics improve, let your staff know and reward those that helped to improve the business.Avoiding Bad Business MetricsWhen creating a business metric, it is undesirable if:  it doesn’t truly measure what is important to your business  it doesn’t support your strategic objectives  you cannot collect accurate or complete data (difficult to measure)  it is qualitative or vague  the data is not timely  it is overly complex  it is difficult to explain  it complicates operations  it creates excessive overhead  it is subject to interpretation  it can be manipulated  it causes employees to act not in the best interests of the
  4. 4. About Dennis FredricksonDennis Fredrickson has an impressive record of driving business growthand has been instrumental in helping many organizations achievesuccess. Business clients have realized benefits such as increasedcompetitive advantage, improved management of financial resources,and the ability to make better-informed decisions that improvedbusiness performance. This has resulted in increased sales, increasednet income and proactive management of opportunities and risks.Dennis’ background includes diverse finance and management experience from within world-class organizations including Universal Studios, Sprint, Employers Reinsurance (GeneralElectric), and Deloitte Touche, as-well-as small (including start-ups) and medium-sizedenterprises. His experience as a CFO and Finance executive includes financial planning &analysis, strategic planning, forecasting & budgeting, profitability initiatives, businessdevelopment, restructuring, process reengineering and more. His well-rounded businessperspective, experience and achievements in fast-paced, dynamic environments provide aunique combination of expertise and vision.Dennis continues to provide targeted solutions to help clients achieve their business goals. He isavailable to discuss your business challenges and opportunities. For more information or toschedule an appointment, refer to the links and contact information below.For more information, go to: www.CFOsolve.comConnect with Dennis on LinkedIn: Cell: 813.390.5545 Interim CFO services driving business growth “Move your success from chance to choice” ©