Measurement and metrics can be deceptively simple. We pick an aspect of our business and ask some basic questions about it, for example:
- How many tables did each of the servers take care of each day?
- How many sales calls did each of the sales staff make each day?
- What is the company’s net profit each month?
- How many people viewed our latest Google ad last week?
- Which of our products gives the highest profit and which gives the lowest?
Answering such questions can help a manager understand a bit more about the business, however, there is a lot more to establishing metrics than simply asking and answering a few questions. It matters a great deal that we ask the right questions, that we get correct answers in a timely fashion and that we analyze the answers carefully then apply what we have learned.
Why are you measuring?
Metrics can be used for a variety of reasons. Purpose drives design, that is the design of the measure changes depending on how it will be used. Sometimes the desire will be to assess the state of the business for a one time decision that needs to be made. Other times the goal will be to establish a base and ongoing input for process improvement and management. For example, a loan company will likely make an assessment of the business for a simple yes or no answer to the question “Is this company capable of repaying the loan?” Or an outside owner may want an answer to the question “Is management accomplishing its objectives?” However, an internal manager is likely to ask questions such as “Are we on track with our sales plan and if not, how can we get back on track?” The manager’s question is likely to be a process question, looking for diagnostics. The investor’s question is to make a one-time decision. The outside owner’s question falls somewhere in between, sometimes it would be a matter of replacing the manager and other times—one hopes—it would be aimed at helping the manager improve performance. Read more