How to get started with business metrics utilization?
Analyzing business metrics is pertinent to studying car dashboard, in a stormy weather. One needs to be aware of car’s fuel light, tire’s deterioration rate, engine maintenance, aesthetics, comfortable interior etc. When all the anticipated standards are met, than one feel cozy in taking a car for a long ride.
Similarly, in business one must meet set of standards before taking it to next level. Standards are like bill-boards which always keep reminding us of our progress and problematic area. Thus, one who constantly keep working in meeting the objectives in factual figures, remain a market leader. So, how exactly one can convert the objectives to standards/goals? Standards are the sub-component of “Business Metrics”. In a world of rapidly digitizing and progressing disruptively, metrics serve as an indicator of how system can be sustained in a long term by deploying or adapting the modern warfare strategies.
It can be defined as “A metric is a verifiable measure stated in either quantitative terms (95% accuracy) or qualitative terms (‘very high customer satisfaction ratings’ from a recent survey).”
It helps in addressing the points,
- How do you know whether Business you participating in is healthy?
- How do you know whether process you are performing in is healthy state?
Business metrics can be of different type, depending upon the area whether they are intended to be used.
“Metrics tell us what to think & how to think”
Every industry, as per their size and requirement can outline the contents which are to be monitored as efficiency/effectiveness metrics. By getting right metrics in hand, one can start monitoring the particular function and wait for the appropriate report generation by metrics for daily, weekly or quarterly comparison. Metrics can generate following commands in displaying information regarding the processes and outputs.
The caution to be address in this aspect is the characteristics of measurement. Bad measurement not only waste the resources, but leads an industry nowhere. Thus, the essential characteristics of god metrics are,
- Quantifiable (Data driven)
- Non-Conflicting & Relevant (Without biasing)
- Achievable & verifiable (measureable objectives)
- Monitored Timely (feedback on recent actions)
- Visible (open culture symbol)
- Comprehensible (easy to understand)
- Actionable (Executable)
Like a manual of car, brief principles state the limits and pre-requisites in filing the metrics database.
- Metrics should be gathered by the person doing an actual work with a supervisory kaizen team.
- Feedbacks must be visible to all and easily understandable.
- The frequency of measurement would depend upon the intensity of metric being used.
- Metrics can acknowledge us about the leading and lagging principle compared to expect one.
- Must be converted to dashboard design for the thorough understanding
- Top management must review the metrics after specific periodic intervals.
- Team must be allocated for carrying out a generic task, and must be accountable, if needed.
Talking about the major metrics impacting businesses, Martin Zwilling from Forbes magazine has listed major ones for businesses to keep an eye on. In my opinion, these are the best crunched out factors which can escalate the beginner company’s performance, if followed rigorously.
- Sales revenue
- Customer loyalty and retention
- Cost of customer acquisition
- Operating productivity
- Size of gross margins
- Monthly profit or loss
- Overhead costs
- Variable cost percentage
- Inventory size
- Hours worked per process.
Any new organization, embarking on the journey of setting metrics in their processes can give these top 10 go-head.