the right metrics
TRANSCRIPT
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.
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2
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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
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3
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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
