Do you find that you’re always searching for information? That you never seem to have it at your fingertips? That the information is in someone’s head or it’s in a report somewhere?
It’s usually never where we need it. It’s missing and thus doesn’t guide you when making decisions within your business. As a result, you are reliant on what other people tell you, which is always from their perspective affectively managing your business on opinion, without analyzing the facts.
So, many business owners are trying to run their business without this fundamental in place. Having a balanced reporting wheel operating in your business will enable you to make informed decisions with a single sheet of paper, maybe two. Sounds good and it isn’t that hard.
There are 4 things you need to consider when building reporting into the business:
1. Know what information is important.
Knowing what you need to measure is crucial. Being able to distil and identify the critical trends, anomalies and themes from the tons of data being tracked or inputted on a daily basis, is the difference between being able to respond quickly and effectively and a poor result. So why doesn’t everyone do this?
Because most people fall into one of four camps:
1. Paralyzed by the vast amounts of information and not sure what to look at
2. They look at the reports that they are comfortable with or that their team provide and they provide no real insight
3. They don’t know what they should be looking at or they have no reports
4. Why would you need a report to know what’s going on in the business?
Once you identify the right information to look at within your business you can focus and monitor the key information knowing that this creates the greatest impact. Yes, you will need to monitor other information but right now let’s focus on the 20% that makes 80% of the impact.
So how do you identify what the key indicators for your business are?
Answering the following questions should provide you with the information to create your reporting. You can always add to it or remove data until you get the key information:
What are the most significant (largest impact) drivers within your business that impact your result?
What are the most important financial outcomes for your business? Is it sales, profit, number of clients etc
What factors influence this outcome? Prioritize them based on the impact
What if any areas within your business are volatile and need to be closely monitored?
Which area within your business if it declined would impact your overall financial goals most significantly?
What are all the activities that influence that result?
What activities within your business have the biggest influence on either costs, customers, sales or profit?
Are there any areas that are impacted by external factors that you need to monitor?
Are there any compliance or legislative requirements that you need to monitor?
Once you have your measures then you need to make the reporting simple and easy for you to identify abnormalities or discrepancies in your business.
The easiest way to do this is to have a comparison and format the report so the result appears red if it is outside your acceptable norm and green if it is within. This way you only have to manage the red and celebrate the green.
So it is important to consider the time period that you use to analyse the data. Are you comparing apples with apples? Is the time period always the same?
What time frame should I be looking at?
Should I be reviewing the current result against another milestone? eg last year, last month – which will give me the greatest insight into the current and future results.
The key measures are different for every market, industry and in some case business. It could be lead generation, customer satisfaction, revenue, number of customers, or else. Whatever those measures are that dictate the success of your company, that’s the information you need to have available at any moment. It’s what you need to create reports on.
2. Lag and Lead measures.
The next step once you have identified your key result indicators are determining how you are going to measure them. There are two types of measures.
A lag measure, which is the outcome, the actual result. It’s accurate, factual and easy to measure. Most businesses use lag measures for all their reporting. I would like to introduce lead measures and their value to your business.
A lead measure, is reported on a more frequent basis than a lag measure and it indicates the likelihood of achieving the outcome (lag). That makes it predictive. A lead measure enables you to change tack, make alterations or adjust your activities whilst you are still within the timeframe. By monitoring lead measures as the business leader, you are able to forecast your results in advance of achieving them and proactively make changes in the period rather than waiting for future periods.
Let me give you an example. If we’re talking about revenue, a lag indicator would be the months revenue budget or target. Once the month is over you know with accuracy that you have achieve it or not.
If you miss the budget number, though, there’s nothing you can do to change the result. All you can do is make adjustments next month.
When you introduce a lead measure in that same scenario, the indicator could be number of sales calls made in a week. Why? Because the more calls you make, the greater the likelihood to make more sales. It’s a numbers game. Or the lead measure could be the % of clients that have pre-bookings already confirmed for the week.
In certain circumstances, the lag and lead measures can appear to be completely separate from each other. If the lag indicator was % of return customers to the business, for instance, then the lead indicator could be employee engagement. There is a direct correlation between the two as it has been scientifically proven that happy and engaged teams demonstrate more discretionary effort and provide better care of their customers. The two are linked but the measures are reported in different departments one in HR and the other in Marketing.
The key is to identify the key outcomes for your business and then measure the activities that your team do that influence this outcome using both lag and lead indicators.
3. Balance counter metrics.
Everything we do within business is in a fine balance. This is no different in reporting. Too much of a good thing is never good, too much chocolate makes you sick the same for too much focus on one metric in your business. Looking at a combination of metrics, to determine your areas of attention and focus. the balance can be lost when you focus too much on measuring one indicator, to the detriment of the others.
The best example here is the dance that happens between gross profit and revenue. Both these outcomes impact each other. Increase your gross profit and your sales organically increase. However, there is a point where if you increase your gross profit through price increases your sales will start to decrease. It is important to measure both the primary indicator and the secondary metric until you find the balance where you are achieving the maximum result.
The watch out here is metrics drive behaviour positive and negative and they can drive unintended and unimaginable side effects. It is important when creating reporting metrics that you consider the potential behaviours that will result from focusing on key areas and create a counter metric to ensure that you achieve the maximum possible outcome. Constantly reassess your outcomes and reporting and adjust the focus to align the behaviour of your team to achieve the outcome. Investing your and your team’s time and energy into one area, or relying heavily on one metric, can and often dos result in a shift in behaviour and a flow on impact to results in another area.
If you are chasing growth in one area, identify the counter metric and report them together so that your team identifies the need to achieve both together not one to the detriment of the other.
4. Balanced Reporting Wheel
All companies that have reporting, have financial reporting. One reason is that the tax office asks for all kinds of statements to refund you money or ask you to pay a bill. It’s necessary to manage your business and maintain cash flow which is the life blood of business. If you don’t have money coming in then you have a very expensive hobby.
However, finance is not the only area with metrics to report and measure and it’s not the only thing that needs your attention. A healthy business measures the key outcomes and activities across all areas and has targets and budgets that enable the roll up to achieve the businesses strategic goals.
Measuring activities enables you to see how they are performing and ask questions to get them back on track or to identify learnings that can be adopted in other areas. It also enables you to measure the success of the strategy and the execution of it be it over the entire business or a business unit. You are able to measure the performance of the team and set benchmarks, internally or industry standards to drive greater performance.
Having a balanced reporting wheel means that you have a holistic view of your business, you are able to make decisions that impact the entire business with a global view of your business rather than a single focus.
All the departments or areas within the business come together to achieve the overall outcome and when you create reporting within the business that addresses all areas you increase your ability to make effective and timely decisions and eliminate the emotions and perception of the team as you are measuring tangible data.
Creating reporting in your business can sometimes feel overwhelming, with so much to consider but with these 4 tips you will be measuring and managing your business success in no time.