According to an article in CFO Magazine, “companies constantly lament that they collect far more data than they can analyze.”1 So how do you cut through the clutter to focus on the truly important performance measures for your business?

You need to create and track a short list of key performance indicators specific to your enterprise. The challenge is that there are several different approaches to build this short list.

A good solution is to build a custom list of metrics for your business using existing frameworks (preferably specifi c to your industry) and best practices. You can organize these metrics into categories and subcategories in an outline form that will allow you to see the range of performance measures and spot any gaps. Once your measures have been defined, you can create a scorecard to monitor your performance.

Which approach is best? All have merits, and it’s likely that the one best suited to you will use metrics from more than one approach.

For each of the five approaches below, let’s look at the basic categories covered and some plusses (+) and minuses (-).

Financial Reporting approach uses financial and managerial accounting reports for performance measurement

+ easy to get the data from your accounting system
- too narrow; may not address the underlying profit drivers; may not capture future opportunities or forward-looking indicators

Executive Summary approach uses the data assembled as part of the“board book” or executive briefings

+ a comfortable and familiar approach that is probably already in use
- may contain legacy “we’ve always done it this way” measures that don’t link directly to higher perfomance; profit drivers may not be grouped or categorized meaningfully

Balanced Scorecard approach uses four main areas of focus to present a well-rounded view of your performance

+ presents a wide-angle view of your business; attempts to identify underlying causal relationships between metrics and performance
- over-emphasis on developing well-rounded perspective may run counter to corporate objectives, strategic focus areas, or organization strengths

Multidimensional approach uses a “data cube” framework supplied by a software vendor or technology consultant

+ can be thorough if the metrics provided do indeed apply to your industry
- may be tied to an expensive software package or implementation methodology; may be too generic and not directly applicable to your specific situation

Industry-specific Profit Drivers approach uses a list of profit-focused metrics tailored to your specific industry

+ can save time since nuances of your industry or business model may already be addressed - may need to be supplemented or cross-checked with other approaches for completeness

A blend of the above approaches, with an emphasis on industry-specific profit drivers, can create a solid foundation for building a thorough, performancefocused scorecard.

Action Points
How to apply this today

1. Obtain a profit drivers framework for your industry. Contact ProfitMetrics if you would like a framework outline for your industry containing dozens of potential metrics.

2. Brainstorm, list, prioritize, and refine key indicators and metrics for your enterprise.

3. Collect underlying data for your indicators and create a one-page scorecard for use by decision-makers. Update the scorecard regularly.

About ProfitMetrics Inc.

ProfitMetrics helps companies on top opportunities by creating customized one-page report called a ProfitMetrics Dashboard.

ProfitMetrics Dashboards:

• are used in a range of industries
• allow you to focus on specific ways to increase revenue, lower costs, and strengthen core values
• can create a balanced scorecard for your organization
• transform your raw data into ongoing reports that highlight top priorities

ProfitMetrics Inc.
2476 Bolsover #400
Houston, TX 77005-2518

www.profitmetrics.com
Tel  (713) 667-5570
Fax (713) 893-2408