The Australian Small Business Blog

Saturday, March 25, 2006

If You Don’t Measure It, You can’t Manage It!

Ask yourself the question, why are you in business? Is the answer: “To Make a Profit”? If it isn’t, what you have is not a business. It’s a charity. Now, there is nothing at all wrong with charities. The world would be a worse place without them. But if you are not making a profit, you are paying your customers to do business with you. If you want to make a profit, or increase the profits you are currently making, you have to focus on the numbers in your business.

Every part of your business has processes that can be measured. In Marketing, it is about the number of Enquiries and the success at each step in your sales pipeline. In Operations, you would focus on unit cost, equipment availability, units produced per month. When you look at your people, you would consider turnover, and training. And of course in your financials you would keep an eye on debtors & creditors, cash at hand, net profit etc.

When you go through your business workflow process, you will find these numbers, or Key Performance Indicators (KPI’s) everywhere. How do you make sense of all the data? By creating reports at different intervals throughout the year. Some KPI’s you might measure daily or weekly, such as the number of enquiries. Others may have a considerably longer interval. For example, if you are a small builder, the number of sales might be measured quarterly, but tight control on weekly and monthly costs would be maintained.

In each part of your business, you should create reports, to monitor your progress against your budget, or even your quotes. As the owner you should review these reports with your staff, or even yourself if you are a soletrader. Are the KPI’s hitting the targets you have set for your business. If not, why not? Sometimes, when it is not possible to see what is going wrong, you need to slice your processes even more thinly to see if there is a problem in the intermediate steps which is not otherwise evident.

When you identify where the bottlenecks are that prevent you achieving your business goals, you can either fix the problem yourself, or bring in someone else to do it. But if you don’t measure it, you can’t manage it!

Dr Greg Chapman, MBA is the Director of Empower Business Solutions

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