Metrics and How They Can Benefit Your Business
Creating dashboard metrics for every part of a business is one of the best uses of your time as a business leader; they will give you an overview of the current state of every important part of your business. Metrics provide the key parameters that show you where your company is headed such as the number of sales or prospects in the pipeline or the amount the company is spending on monthly basis.
These metrics, however, shouldn’t just be limited to the standard values that come to mind when we refer to these types of indicators. They can also include the parameters that are crucial to your company and more specifically, your industry. Some of these indicators may not even be used by other similar companies--they might be your special formula and what makes your company unique.
Ray Dalio, investor, hedge fund manager, and author, explains the concept in his book, Principles: Life and Work, where his advice was to develop key indicators for the entire company.
Build great metrics. Metrics show how the machine is working by providing numbers and setting off alert lights in a dashboard. Metrics are an objective means of assessment and they tend to have a favorable impact on productivity. If your metrics are good enough, you can gain such a complete and accurate view of what your people are doing and how well they are doing it that you can almost manage via the metrics alone.
Principles: Life and Work, Ray Dalio
How to Create Your Company’s Metrics
1. Start from Zero
Instead of considering what you already have, think of what you need. Start with the metrics that give you the information that is essential to run your business. One way of finding this information is by listing all the obvious metrics that you can initially think of, then consider the numbers that would be useful to have, at your fingertips. Finally, think about how it might be beneficial to measure the events that can be the riskiest for the business. Develop numbers that will alert you before a major problem such as low cash flow occurs.
Some examples of standard metrics are:
Size of sales pipeline
Also include some of the metrics that are outside of standard parameters that you want to measure, which are important for your company:
Innovative implementations within each of the departments
Date by which audited financial statements were received
Customer service survey results
The metrics should also represent some of the key levers that make your company work. To find these levers, look first at the results you are working towards and then identify the key milestones that can help the company reach those goals.
2. Get Feedback
Work with each of the teams individually to compile the master list of metrics to build the entire company dashboard. Each of the team managers should lead based on those metrics, as these metrics will also give the entire team clarity around what results they can contribute to, which will support the company’s overall mission.
Also, through individual feedback, you can find out if the indicators reflect the team’s reality or if there is a better way to represent the information. Sometimes, the metrics may be difficult to put together and don’t provide value, or a team member may point out useful alternatives. Once you have compiled a workable list, compare the results across the teams, and identify what some of the best practices that can be used to improve information across the board are.
The metrics won’t necessarily ever be perfect but refining and iterating on the indicators will produce the closest representation of what Ray Dalio describes. Continuous improvement and enhancement of the dashboard are crucial. The best set of metrics will be the simplest combination of numbers that give you all the information you need to run your business.
As you are refining, you may discover that some of the indicators that appeared important at first may no longer seem as relevant. Others, on the other hand, can be simplified so that the numbers give you exactly what you need. Some metrics can also be combined. In other instances, you can compare two different metrics to show the relationship between the two. What’s important is to continue improving the dashboard so that the metrics will be as accurate as possible.
The true value of the metrics will come with time. Once you have anywhere between six months to a year of data, you will be able to analyze the findings. One of the unexpected benefits from the metrics is that you can see trends and learn how key parameters are developing. Metrics will also give you data on expectations versus reality. If you are measuring, for example, how long a project took compared to the initial forecast, you might find that the original plan was overly optimistic and that a similar project usually takes longer. In the future, it will help you set realistic goals and plan accordingly.
As the saying attributed to Peter Drucker reminds us: “If you can’t measure it, you can’t improve it.” There are parts of your business that are probably not being measured if you are not deliberately creating those metrics. Once you have come up with your ideal dashboard, you will find the places where there is room for improvement so that you can take the necessary actions, and then the metrics themselves will show you how far you have come.