Advisor insights from the field

Posts Tagged ‘smart numbers’

Choosing Smart Numbers (Part 2)

Wednesday, February 15th, 2012 by Troy Schrock

(Read Part 1.)

Once smart numbers are developed, they need to be properly communicated.  The reporting process is as important as the numbers themselves.  Information cannot inform decisions if not shared in a practical and useful way.  A simple scorecard captures the smart numbers on a daily – or at least weekly – basis.  In addition to providing the current smart number, the scorecard should provide context (for example, the smart numbers for each day that week, the prior six weeks, or the last year).

Who should see the smart number report?  At the very least, the executive team should see the report.  Other managers may benefit from seeing the overall company perspective contained in the smart
numbers report.  Keep in mind, the purpose of the smart numbers is to enable decision makers to react quickly to the current reality.  Anyone who can help the company by knowing the smart numbers should be included in the distribution.

The second insight is a practical tip.  Business conditions change over time, so you should periodically review your smart numbers to ensure they are still applicable and appropriate.  Sometimes a slight modification is required, while other times, one or two of the existing smart numbers may need to be replaced completely.


Choosing Smart Numbers (Part 1)

Tuesday, January 18th, 2011 by Troy Schrock

The first metric type in the list from the last post was leading indicators.  Since these metrics provide advance alerts for decision makers, we commonly refer to them as “smart numbers.”  Smart numbers should be viewed on daily – or at least weekly – basis.  Some organizations even monitor smart numbers on an hourly basis.

To help you in choosing smart numbers, here are a few general types I have seen in my work as an advisor:

  1. Revenue forecast.  For some businesses, this is based on factors like time of week/month/year, traffic volume, general economic attitude, etc.  For others, it is a view of the revenue
    pipeline – a cumulative view of upcoming work.  For example, it may be the dollar value of bids won and bids sold for a given period.
  2. Effectiveness of delivering on value proposition. Every business has a value proposition.  You should have a smart number that measures your effectiveness in delivering on that promise to the market.  For example, if your business has a guarantee or return policy, track how many times you have to honor that guarantee, which can be converted to the dollar value of damages
    related to missing on your promise.
  3. Cash position or availability.  Availability factors in cash-in-hand as well as cash available from a line of credit.  This may also take also take the form of modified working capital availability (total cash and receivables less payables).
  4. Measure of your base economic unit of value.  Every business has a base economic unit of value such as a billable hour or unit produced.  How many units have you produced and how many do you project to produce over a given time period?