Measure What You Want To Improve

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Measure what drives your goals. Inspect what you expect monthly. Identify weaknesses and repair them. Reward and celebrate success.

June 01, 2003

 

Matt Plaskoff

mpc@plaskoff.com

 

They say, "What you pay attention to, improves." They also say, "Inspect what you expect." These are wise thoughts from smart people, but the critical questions for every business owner start well before these answers. For example:

  1. What should you pay attention to?
  2. What should you inspect?
  3. What should you measure?
  4. How do you measure it?
  5. When should you measure it?

What you measure - the metrics by which you run your business - will drive improvement and expectations in your company.

Over the following months in this column, we'll examine how to determine which metrics are best for your company, how to track and manage your metrics and, finally, how to use your metrics to support the direction of your company and how to hold your team accountable using these tools. We'll study each department and discuss the metrics and how they can help you track your success.

Before we get started, you, as the owner, have another important decision to make. The measurements we will cover may be used as internal monitoring tools for your eyes only. Or, this information can be the basis of an incentive program driven by an open book management system. In other words, you can use the measurements for managing the company, or you can share the measurements with your team - as we do - and tie their incentives to the outcomes. The reason we call it open book management is that in order to utilize the tool to it's fullest, you must:

  1. Teach everyone how to understand what the numbers and measurements mean
  2. Share the information with them (open the books)
  3. Teach them how they can individually have an affect on the measurements and
  4. Give them a stake in the outcome of the company so they are motivated to get involved.

What, How & When

Whether you use the information for open book management, internal monitoring or something in between, you need to go through the same steps of determining "what" to measure, "how" and "when" to measure it.

The "what" to measure comes from your mission statement, strategic business plan and the things that drive your business. If customer satisfaction is vital, measure customer satisfaction. If profit is vital, measure profit. If outstanding accounts receivables is vital, measure it. If your concern is future work flow, track leads. Determine the top 10 to 20 items that you want to measure. Break these items into departments. For example:

  • Sales and marketing: leads per month, leads to prospect ratio, bid to get ratio, dollars closed per month, total backlog
  • Estimating: estimating volume per month, bid to get ratio, percent deviation gross profit
  • Production: client satisfaction, percent of jobs on schedule, gross profit installed per month
  • Administration: AR days outstanding, cash, total G&A per month, average job size, net profit.

Each department should be responsible for their own metrics. For example: If your goal is to install $2 million per year in revenues (overall plan) and your bid to get ratio is 33% (sales), you need to estimate $6 million in projects per year (estimating). If your average job size is $100,000 (administration), you will need to bid 60 jobs per year (estimating). If you bid half of the leads you take in, you need to take in 120 leads per year or 10 per month (marketing). Each department tracks their piece. Each company goal can be broken down similarly by department and even by each individual in each department. We'll talk more about how this looks specifically in future articles.

 

Metrics Spreadsheet
July
Plaskoff Construction
 
Budget/Goal
Actual
Deviation
Financial
Revenue Installed
$667,000
$672,000
+$5,000
Gross Margin Installed
$165,000
$166,500
+$1,500
Net Operating Profit
$55,000
$56,500
+$1,500
Accounts Receivable DSO
20 Days
24 Days
+4 Days
(Days still outstanding)
Sales
Closed
$700,000
$425,000
($275,000)
Bid to Get Ratio
45.55%
43.45%
(2.10%)
Estimating
Bid Volume
$1,750,000
$1,850,000
+$100,000
Marketing
Leads #
33
33
0
Leads $
$7,000,000
$8,500,000
+$1,500,000
Average Size
$212,000
$257,575
+$45,575
Prospects Per Month
10
8
(2)
Quality/Customer Delight
Scorecard
9.5
9.2
(.3)
Operations
Milestone success %
100
90
(10)
Purchasing
Net Savings to Est. Budget
5%
5%
0

Create a spreadsheet that indicates your budget (expected result), your actuals and the deviation. Include the previous year's results for comparisons month-by-month.

Finally, the "when." This spreadsheet and all metrics should be reviewed on a monthly basis, at a minimum. In fact, I would recommend you review the monthly departmental metrics and goals with department heads on a weekly basis. This way, if a department is off-track, a problem-solving session can take place. Once a month, the actuals are posted, and if you are open book, the whole company participates. If not, it's a meeting with your team of department heads.

This tool is a great basis for an incentive program. Imagine: You set the metrics and track them regularly. If metrics are exceeded, you reward. Be sure to define the reward prior to it being attained. It's about expectations. Make sure you can afford the reward and that overall company profitability is a requirement for all reward payouts.

If a metric falls short of expectations, hold the party responsible for the metric accountable. You ask, "Why was this not met? What are you doing to make sure it is met next month?" Continual failures indicate possible weaknesses in your organization.

In our company, we set a gross profit per month goal. We know how much profit each project manager can install. We received buy-in from each project manager and set him or her to the task. When five out of six project managers consistently hit their marks and one did not, we took a look at why. We found that the project manager was scheduling poorly, and his jobs were running long. That meant the profit was being spread over a longer period of time. Hence, less profit per month. We worked with him and trained him, and he now installs the proper amount of profit per month.

Other examples: If we miss our lead goal for a month, our company will experience a lull in business three months later. We adjust and increase our lead goals when that happens. We've had occasions where sales was not meeting its goal but the reality was that estimating was not performing. We put the accountability where it belonged with the data that we had.

As success begins to become the norm in all departments, raise the bar. Your team will rise to the occasion if they know "what" they are accountable for, "how" to measure it and what is their reward or consequence.

What to Watch

Now this process is not without pitfalls. Accountability can be very difficult to manage, especially if it is public accountability. Be careful not to breed a culture of negativity. Those who continually fail may leave on their own accord. If not, you may be forced by your team to take action. Be prepared. Inaction will cause people to see negative results over and over, breeding negativity. In addition, make sure your goals are realistic and attainable. Use past data and past success as markers. Raise the bar, but don't raise it so high that your team continually fails to meet the mark. It can be very disheartening to never succeed. Create small successes initially that fuel the fire. Finally, make sure that your sources of data are in order and are producing accurate data. Failing to meet expectations because of inaccurate data collection is not only unfair but also very discouraging.

Measure what drives your goals. Inspect what you expect monthly. Identify weaknesses and repair them. Reward and celebrate success.

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