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."
"Managing by the numbers" replaces your gut feelings and opinions with business intelligence. It provides the seeds of solutions to problems and is the basis for making vital and well-informed decisions. You can know the financial impact of a decision before you ever spend a dollar. Good decisions will save or earn you far more than the cost of acquiring data and information. So don't skimp!
Measurement Drives Process Improvement
Renowned business authority Peter Drucker counsels, "You cannot manage what you cannot measure." Michael Dell, of Dell Computers, adds, "Anything that can be measured can be improved."
Consider this: Your business activities are always generating numbers, regardless of whether you pay attention to them. These activities are the daily systems and processes that create sales, deliver products, train employees, service customers, and so forth. An effective accounting system will organize those numbers to produce a wealth of relevant information for you to make important decisions and profitably run your company.
Your accounting system may tell you to hire a salesperson, and what your new break-even point will become. It may tell you to discontinue an unprofitable product line, buy another piece of equipment or raise product prices, and by how much. You will benefit from knowing the optimum inventory level you should stock, or what sales increase to expect from additional advertising. Numbers are the language of business improvement!
Measurement Drives Accountability
Remember this: The essence of "accounting" is not "counting." Yes, you should know your sales for the month, your bank balance, or how much money you owe vendors. However, the true purpose of accounting is to create "accountability." Each of your business systems and processes is accountable for a planned result.
- Is my lead generation system producing the expected number of sales opportunities?
- Does our quality control system keep waste under 1%?
- Is my employee incentive system boosting productivity?
Counting, or bookkeeping, is an overhead expense of doing business. However, measurement with accountability is an investment that pays big dividends!
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 stay close to the numbers to be successful. Start by measuring your core systems and processes, the ones that help you find and keep customers, and most influence your profitability.
I’m convinced that managing by the numbers is an essential business process with a big payoff! I hope you are too!