If It Can’t Be Measured It Can’t Be Managed

One of the challenges faced by us business owners is being objective about our own business! We are too close to it. It is our child and so it can do no wrong; even when it reaches its teenage years. But we must find a way to be objective. We have to find those things we can measure so we can objectively manage the progress of our business. Those things are called Key Business Indicators (KBI’s).

After all, if you can’t measure it you can’t manage it.

There are two types of KBI’s; financial and operational. The financial indicators have been around since the caveman Flog opened the first corner store. They are often called “lag” indicators because they are used to measure what has happened in the past. They relate directly to the financial health of the business; for example:

• Revenue

• Profit

• Cash flow

• Expenses

Pick the one(s) that are key to your business and start measuring them on a consistent basis.

Important point. The commonest mistake made when managing Key Business Indicators is NOT taking corrective action when necessary because you are convinced it will correct itself next month. It won’t; take action now!

The operational indicators tell us how well the business is working. These are more specific to a particular business or industry. And they change as the business grows and becomes more complex. And they have changed over time as technology allows us better measurement tools. Some examples of operational indicators are:

• Response time to customer requests

• Sales numbers game: numbers of leads that turn into prospects and eventually customers

• Customer satisfaction rating

• Quality control

• Productivity

Another important point. Before you start measuring your selected KBI’s you must first set your target for each.

So once you have your KBI’s and you are measuring them AND taking corrective action when necessary you will be in a happy place because:

• You know what is going on

• You can anticipate problems before they become huge

• You focus objectively on the right areas of your business

• You are informed

• You make decision based on fact not intuition

Measuring and acting on the results of your Key Business Indicators is another process to be documented (see last week’s blog) and it is your management responsibility to the business and everyone involved with it.

http://www.yourplanningpartners.com

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2 Responses to “If It Can’t Be Measured It Can’t Be Managed”

  1. Darron Roberts Says:

    Business Performance Management, should be the main decision making tool for the business, as you have described in your article.

    I visit many SME’s and you will b surprised how many do not use this process. Decisions are made by argument and not factual numbers, with the problems masked by the profits being made, the owners do not realise that they could be making much more with the correct decisions.

    A number of business men think that strategy development and deployment is difficult, made so by some business schools and consultancies.

    I practically develop a business plan and then align the business by deploying the strategic objectives, KPIs & measures. A monthly management meeting is held to manage the KPI’s and take decisions on the direction of the business. This then becomes routine.

    Simple! or should be.

  2. Your Planning Partners Says:

    Thank you Darron; your comments are well taken.
    Nick

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