Manage By the Numbers!
As a former accountant, I am always amazed at how many business owners do not use their monthly financial statements as a tool to manage their business. It is even rarer for them to measure performance of their core systems and processes.
In 1891, a British scientist named William Thompson, also known as Lord Kelvin, said, “When you can measure what you are speaking about, and express it in numbers, you know something about it. But when you cannot express it in numbers, your knowledge is of a meager and unsatisfactory kind.”
Managerial accounting is the art and science of managing by the numbers. It requires a thorough understanding of both leading indicators (real-time system performance) and lagging indicators (monthly financial statements). By measuring results and providing frequent feedback to managers and teams, it is possible for you to dramatically improve the performance of your organization.
Business Accounting Includes System Measurement
Accounting is your system to measures the effectiveness of all your business processes—the operations of your organization. Its essential purpose is to help you maximize sales throughput and profit—the lifeblood of your business.
Your accounting system is the “brain” of your organization. It reduces large quantities of data into useful information. Numbers reveal your strengths and weaknesses. They tell you what went wrong in the past and what you can do now to improve the future.
Managing by the numbers replaces gut feelings and opinions with business intelligence. It provides the seeds of solutions to problems and is the basis for making vital and informed decisions. You can know the financial effect of a decision before you ever spend a dollar! Good decisions will save or earn you far more than the cost of acquiring the information. So don't skimp on your accounting system!
Renowned business authority Peter Drucker says, "You cannot manage what you cannot measure." Michael Dell, of Dell Computers, adds, "Anything that can be measured can be improved.” Measurement and feedback drive all process improvement.
With systems and processes, the types of measures that you will apply include productivity, quality, timeliness, cycle time, resource utilization, and costs. In Box Theory™, we use a "Balanced Scorecard," developed by two professors at Harvard Business School, to establish measures and set target goals.
What are Your Key Performance Indicators?
A few key performance indicators (KPI's) drive the "economic engine" or your organization. If these results are good, everything else tends to fall into place. You should decide what those key numbers are for your company and watch them closely. They may include ratios like profit per square foot of space, profit per customer visit, profit per employee, sales leads per day, sales conversions per presentation or per website visit, defective units per thousand produced, ounces of gold per ton of rock, and so forth. You get the idea. Focus on your most important results (numerator) and your most expensive resources (denominator). What are the one or two KPI's that drive the success of your organization?
Select your business measurements carefully and only measure what you will use. Establish process measurements that let you know every day how you stand in relation to your output goals; keep in mind that the earlier your measurement system can catch a problem, the sooner corrections can be made. Begin now to manage your business by the numbers; let measurable results drive improvement of your vital systems and processes.
By the way, if you are not a numbers person, or don't have a numbers person in your organization, get one now! In this highly competitive world, you have to manage by the numbers to be successful.
The Box Theory™ way relies on data to drive improvement. You will learn about baseline data, benchmark data, trend data, diagnostic data and other ways to look at a problem. Numbers are the language of improvement. Now get this, just by measuring your systems or processes, without making any changes to them, your performance will increase. Sweet!
When you purchase my Box Theory™ eCourse, you also get a free spreadsheet with templates for system measurements. If you don't have the course yet, jump over to my website at www.boxtheorygold.com/business-course and get it today. The material contains hundreds of ideas to save or earn you money and it will be a valuable resource to your business development activities.
Tomorrow is Day 10. We will put it all together. Until then—
Wishing You Prosperous Times,
Ron
Return to Table of Contents
Mini-Course, "Fast-Start to Systems Thinking"