The Right Metrics
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The Right Metrics

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Industry metrics are great. However, high level metrics such as ROA are simply not granular enough to assess the progress of internally derived strategic initiatives, such as improvement in a ...

Industry metrics are great. However, high level metrics such as ROA are simply not granular enough to assess the progress of internally derived strategic initiatives, such as improvement in a particular product line, service, or process. Here are four steps to developing meaningful internal metrics.

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The Right Metrics Presentation Transcript

  • 1. THE RIGHT METRICS
  • 2. “I’m not dumb. I just have a command of thoroughly useless information.” - Bill Watterson
  • 3. 4 STEPS TO THE RIGHT METRICS • Industry standards help us to make valuable comparisons. Company B • As an investor we can choose one company over the other. • As an officer we can gauge our performance against industry peers. EPS ROA ROE Company A 0 10 20
  • 4. 4 STEPS TO THE RIGHT METRICS 2% Q1 Q2 Q3 Q4 0% Asset Growth • However, industry metrics cannot gauge the progress of internally derived strategic initiatives. • High level metrics such as ROA are simply not granular enough to assess improvement in a particular product line, service, process, etc.
  • 5. 4 STEPS TO THE RIGHT METRICS •Metrics can provide a basis for comparing performance: -Against prior performance -Against a target goal -Against competition
  • 6. 4 STEPS TO THE RIGHT METRICS • To create relevant internal metrics, we’ll complete four essential steps: 1. Create measurable objectives 2. Gather data 3. Analyze data 4. Refine assumptions
  • 7. CREATE STEP I: Create Measurable Objectives
  • 8. “Without long-range goals, you are likely to be overcome by short-range frustrations.” - Zig Ziglar
  • 9. CREATE GOALS & OBJECTIVES • If our goal is to increase profit, then… • Our strategic objective is to increase profit by completing projects A, B, and C. • And we need to know how much projects A, B, and C individually contribute to the increase in profits.
  • 10. CREATE GOALS & OBJECTIVES • We quantify our objectives so that we can identify value additive activities to continue, and to identify non-value additive activities to discontinue. Profit 5 4 3 2 1 Profit 0 -1 -2 -3 A B C
  • 11. GATHER STEP II: Gather Data and Relevant Information
  • 12. “Everything that can be counted doesn’t count and everything that counts cannot be counted.” - Albert Einstein
  • 13. GATHER DATA Quantitative • Quantitative data provides firm numbers that readily lend themselves to statistical manipulation. Qualitative • However, quantitative data does not provide a complete picture. • Qualitative data is needed to make the data meaningful.
  • 14. GATHER DATA Quantitative Qualitative Quality 4 Assessment Risk Medium Low Wide Good Narrow Service Excellent Good Poor Other 2 High Fit 3 Good Average Poor Data 1 0 0 2 4 Objectively observe data. Assign qualitative attributes to the data.
  • 15. ANALYZE STEP III: Analyze Data and Form Conclusions
  • 16. “Torture the data and it will confess to anything.” - Ronald Coase
  • 17. ANALYZE DATA • There’s a lot of readily accessible data; • However, all data is not relevant to your organization or to your strategic objectives. • Be critical and carefully assess all data: -Is this information relevant to me? -In what manner is it relevant to me? -Is there information that may be of greater relevance to me? -How reliable is this source of data?
  • 18. ANALYZE DATA I Test Data for Relevance • Is the data objective? • Is there sufficient data to be conclusive? • Is the data related directly or indirectly to my industry, my market, or my product? • Is the correlation statistically significant, (>0.05)? II Observe for Direction • Is there an established pattern of behavior? • Is it stable, trending upward, or, trending downward? • Has there been a recent change in the trend? Why? • What does the data tell me about my consumers’ behavior during an economic downturn or when the price increases?
  • 19. REFINE STEP IV: Refine Behaviors and Underlying Assumptions
  • 20. “Meaningful data is one of the most powerful decision making tools.” - Anonymous
  • 21. REFINE ASSUMPTIONS What Worked What Failed • Variables A and B exhibit greater than .05 correlation • Demand for products AA and CC is not elastic. • We expected variable C to be a major influence. However, there is less than .05 correlation. • Product BB: -Pricing may not be competitive -May be viewed as a luxury item • New products generated less than 1% of total revenue.
  • 22. REFINE ASSUMPTIONS • Adjustments: -Discontinue use of variable C as an indicator -Discontinue or reposition Product BB -Complete a competitive analysis for pricing -Solicit consumer feedback for new products • Discontinue collection of some data • Begin constructive collection of new information
  • 23. REPEAT The Cycle
  • 24. “Discipline is the bridge between goals and accomplishment.” - Jim Rohn
  • 25. REPEAT • The four steps to the right metrics is a never ending cycle. • Proper execution enables the organization to become better at identifying their strengths and better at creating reasonable targets. Refine Assumptions Create Goals and Objectives Analyze Data Gather Data
  • 26. Comments or questions? Please send them to info@finandmrkt.com!