The Strategy of Metrics and KPIs
Data is Everywhere
Regardless of what you do each day, you’ve probably realized that you are surrounded by data. The quantity of data that exists in the world grows substantially with every passing hour and it is said that 95% of it has yet to be analyzed. That’s okay, because success in the data and metrics world is not about analyzing data for the sake of analyzing data. It’s about analyzing data to answer a question. There also has to be value in finding the answer to that question or you risk wasting valuable resources (time and money).
Let’s consider a topic that is of interest to all of us and use crime data as an example. We all like to know what’s going on in our neighbourhoods. We want to know where it is safe to be and more importantly, where is it not safe to be. We also like to know which types of crime are occurring and to what magnitude. Lucky for us, much of this data is available on the internet.
But the quantity of specific data does not tell us the entire story. Crime maps may tell us how crime rates are today, but we also want to know how this data trends over time. Is crime in our area getting better or worse?
In the business world, we now compete on data, information and analytics. Keeping a close eye on your business metrics is crucial to your success. But which metrics should you measure for your business? You can find hundreds of articles on the internet regarding this topic, but each one represents a different opinion and a different perspective. The selection of metrics for your business should be as unique as the business itself.
This brief article will help guide you into the simple world of metrics and help you understand the nuances that make that simple world a little bit more complex when applied to the real world.
Terminology: Measures, Metrics and KPIs
Many people mistakenly use the terms measure, metric and KPI interchangeably. Even some of the large consulting / training organizations have made this mistake. In reality, these three terms define something quite different. It is important to learn the difference.
Selecting the right metrics takes time, effort and planning. What I often see in companies or departments is that there is a rush to implement metrics in order to be able to claim that metrics are being used. It seems to be viewed as a step toward credibility within a department. The end result is that metrics are selected without a great deal of thought and the company later falls victim to the unintended consequences of the chosen metrics.
Each company will be different and if your organization is large, each area within your company will be different. Metrics need to be aligned to your specific business goals.
Trends and Their Interpretations
Another misunderstanding I see a great deal is in the presentation of metrics. It is of little practical use to know the exact value of a metric if you don’t know how that metric became today’s value.
The trend is usually of more value than the actual number. As another item to learn, you must understand when to call something a trend. If your data shows that sales this year are greater than last year, that’s not a trend. Learn to pick an appropriate timeframe to understand the behaviour of your metrics over time.
The Fundamental Rules of Metrics
- If you don’t measure it, you can't manage it.
- If you can’t take action on it, why measure it?
- People will behave according to the metrics and targets you select.
Learn why these are the fundamental rules I suggest to everyone, regardless of the functional area in which you work. The last rule is greatly absent from most companies and it’s the one that will catch you off guard every time. For some companies, rule #3 has cost them millions of dollars.
Metrics come in different classifications since there are multiple aspects of a business that you can measure. Often, you will need several metrics of different classifications to fully understand how you are performing regardless of whether you’re measuring internal or external performance.
Prioritization of Metrics
In the practical world, you will often find that the list of desired metrics within a company or department is far more than is practical to measure. It is important to have a simple method for prioritizing the implementation of metrics. This prioritization method should be based on the concept of effort and value.
Tracey Smith is an internationally recognized analytics expert, speaker and author. Her hands-on consulting approach has helped organizations learn how to use data analytics to impact the bottom line. Tracey’s career spans the areas of engineering, supply chain and human resources. She is CPSM certified through the ISM. If you would like to learn more, please visit www.numericalinsights.com or contact Tracey Smith through LinkedIn. You can check out her books on her Amazon Author Page.