the right metrics

THE RIGHT METRICS

“I’m not dumb. I just have a

command of thoroughly

useless information.”

- Bill Watterson

• Industry standards help us to make valuable comparisons.

• As an investor we can choose one company over the other.

• As an officer we can gauge our performance against industry peers. 0 10 20

Company A

Company B

EPS

ROA

ROE

4 STEPS TO THE RIGHT METRICS

• However, industry metrics

cannot gauge the progress of

internally derived strategic

init iat ives.

• High level metrics such as

ROA are simply not granular

enough to assess improvement

in a part icular product

l ine, service, process, etc.0%

2%

Asset Growth

Q1

Q2

Q3

Q4

4 STEPS TO THE RIGHT METRICS

•Metrics can provide a basis for comparing performance:­Against prior performance

­Against a target goal

­Against competition

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

4 STEPS TO THE RIGHT METRICS

STEP I:

Create

Measurable

Objectives

CREATE

“Without long-range goals, you

are likely to be overcome by

short-range frustrations.”

- Zig Ziglar

• 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.

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.

-3

-2

-1

0

1

2

3

4

5

A B C

Profit

Profit

CREATE GOALS & OBJECTIVES

STEP II:

Gather Data

and

Relevant

Information

GATHER

“Everything that can be counted

doesn’t count and everything

that counts cannot be counted.”

- Albert Einstein

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.

GATHER DATA

Quantitative

0

1

2

3

4

0 2 4

Data

Qualitative

Quality Assessment

Risk High Medium Low

Fit Wide Good Narrow

Service Excellent Good Poor

Other Good Average Poor

GATHER DATA

Objectively observe data. Assign qualitative attributes to the data.

STEP III :

Analyze Data

and Form

Conclusions

ANALYZE

“Torture the data and it will confess

to anything.”

- Ronald Coase

• 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?

ANALYZE DATA

I Test Data for Relevance

• Is the data object ive?

• Is there suff ic ient data to be conclusive?

• Is the data related direct ly or indirect ly to my industry, my market, or my product?

• Is the correlat ion stat ist ical ly signi f icant, (>0.05)?

II Observe for Direction

• Is there an establ ished pattern of behavior?

• Is i t stable, trending upward, or, t rending downward?

• Has there been a recent change in the trend? Why?

• What does the data te l l me about my consumers’ behavior during an economic downturn or when the price increases?

ANALYZE DATA

STEP IV: Refine Behaviors and Underlying Assumptions

REFINE

“Meaningful data is one of the most

powerful decision making tools.”

- Anonymous

What Worked

• Variables A and B exhibit greater than .05 correlation

• Demand for products AA and CC is not elastic.

What Failed

• 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.

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

REFINE ASSUMPTIONS

The CycleREPEAT

“Discipline is the bridge between

goals and accomplishment.”

- Jim Rohn

Create Goals and

Objectives

Gather DataAnalyze Data

Refine Assumptions

• 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.

REPEAT

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Please send them to

info@finandmrkt.com!