Tuesday, 10 November 2015

How to Define the Right Metrics Using Three Steps? Part 4

Step Two Isolate Underlying Causes 

Information Overload
Leading measures provide insight into the results of the future and expected values, whereas lagging measures give actual results over a set period of time. Financial measures are a translation of the operational measures into financial values and non-financial measures track values of the activities that take place in the business. Finally, internal measures concentrate on things inside the company, while the external measures are focus on things outside. A lot of information that is passed on to managers actually has questionable value. 

Most organisations focus on reporting the internal historic and the financial measures and this is basically the opposite of what the managers use to make their decisions. Cycle times are too long and organisations are having a hard time reacting to the market and failing to target people at the right times because historic data is used more than the future’s and leading measures.

Mistake Detail for Accuracy
The amount of data that’s being curated and collected has exploded in recent years. As a result the potential to use the data has also increased but often the data being used is not the most beneficial to the company. It’s so easy to collect all the data and find that the performance management processes are missing out on the most relevant and important data because it has become obscured by all the information. Getting more data doesn’t always result in greater accuracy. The more the irrelevant detail results in, the more the needs of complex reporting and analysing activities is required in place.

Overtly Financially Focused
Companies often have annual financial plans that fail to take into consideration the following important questions:
·         How much will come from acquiring new customers or increasing the amount of sales made to existing customers.
·         How much will come from new products verses an increased number of sales of the current products being sold.

As a result the financial plans are not linked to the strategies and they’re being used to support. Additionally, there will be variances that need to be planned for. Without add ressing the questions above the financial plan will not provide much assistance throughout the year.

Lack of Process and Project Orientation
The overall performance of an organisation depends on the effectiveness and efficiency of the processes they perform. Therefore, the objective of the organisation is to create performance management processes that can be examined in real time, along with making plans and models that can be used to make fast decision making.

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