Creating a business intelligence system to make more money lies in your metrics management

The purpose of any business intelligence system (BIS) is to make more money.  An essential component of any BIS is the leading and lagging metrics measurement part that confirms the quality of your results.  BusinessCPR™ Step 2 helps you identify the results you want with B-CPR Step 3, confirming how well you perform against your profit plan.

Your profit plan also tells you what situation you are trying to prevent.  Without a business intelligence system, you are much more likely to spend more on COGS, SG&A, and other expenses than you planned for or ever intended.  The primary challenge with spending more than you plan is to offset the higher than planned expenses by lower spending in other areas.  If you don’t cut costs in other areas, you are guaranteed to have smaller profits and less cash flowing through your business.

Business intelligence is how you know if your business is on track to make money before it’s too late.

As you confirm the quality of your actions through weekly KPIs (key performance indicators) and the quality of your results through monthly variance reports, you’ll establish where your business is on track.  You’ll also identify where you are not tracking to meet your profit plan goal.  Note that profit plan goals can, and do, overlap with your strategic goals whether or not you have a strategic plan mapped out.

For example, let’s say you have a strategic goal of $1,000,000 in new product sales revenue with an average per unit value of $10,000 and that your expected sales cycle for this new product is six months long.  Rather than waiting the full six months to see if you’ve reached your goal of 100 planned new product sales, try tapping into some valuable intermediate metrics.  Define your own shorter-term key leading indicators, such as the number of sales calls your sales team needs to make each week to hit the $1,000,000-mark in new product sales in six months.

As you track weekly activity for both sales calls made and closed sales, you’ll gain a sense of whether you’re in reach of 100 deals sold and whether you’re in shooting distance of achieving your lagging strategic goal of a $1,000,000.  You don’t need to wait out the six months to find out.  Instead, you’ll be able to operate with a solid sense of probable success during each week’s KPI review.

Developing practical KPIs

The right column is the core lagging metrics used to confirm long-term trends in any business in the table below.  In the left column are listed some of the most commonly used leading indicators that shape the results reported on the right.

Leading Metrics	Lagging Metrics
SALES ·         Sales Activity –    Touches (calls, emails, appts) –    Quotes, RFP, RFQ, or Bids –    Closes or Sales –    Conversion Rate –    Avg. Transaction Size ·         Customer Loyalty (customer retention) –    Customer Satisfaction –    Customer Value	P&L ·         Sales Revenue ·         Net Revenue Growth ·         Cost of Sales ·         Gross Profit   BALANCE SHEET ·         Accounts Receivable
OPERATIONS ·         Cycle Time – measure of lead times –    On-Time Delivery Percent –    Critical Path Measures ·         Productivity – measure of output vs time –    Billable Hours Percentage –    Labor Capacity Utilization Percent –    Units per Labor Hour ·         Efficiency – measure of process throughput –    Yield –    Inventory Turns ·         Quality –    Scrap –    Rework ·         Capacity –    Utilization Percent –    Equipment Up-Time, Down-Time ·         Safety – to focus safe work behaviors –    Days without Incidents –    Days without Violations –    Training Hours Percent	P&L ·         Cost of Goods Sold ·         Gross Profit   BALANCE SHEET ·         Inventory ·         Fixed Assets ·         Total Assets ·         Accounts Payable ·         Current Liabilities ·         Long-term Liabilities
FINANCE ·         Cash Flow –    A/R Days –    A/P Days –    Cash On-hand Percent to Desired –    Collections Funnel §  Orders shipped to invoices §  Orders shipped to deposits §  Orders shipped to CODs §  Number of courtesy calls §  Collections calls per day ·         Investment –    Return on Inventory –    Return on Assets ·         Coverage –    Days of Liquidity –    Working Capital Ratio –    EBITDA to Fixed Cost Ratio	P&L ·         SG&A Expense ·         EBITDA ·         Net Income   BALANCE SHEET ·         Accounts Receivable ·         Current Assets ·         Fixed Assets ·         Total Assets ·         Accounts Payable ·         Current Liabilities ·         Long-term Liabilities ·         Owners’ Equity ·         Retained Earnings

Another approach to establishing the most precise leading metrics is to identify what problem you are trying to solve by identifying each of its steps.  Below are some examples of a “problem-based” approach:

Problem to solve	Metric
Late deliveries	Cycle time-critical path measures
High rework	Quality – rework at control point
High scrap	Efficiency – yield
Low margin	Sales – average transaction size COGS – cost of labor, materials, outsourcing, etc.
Poor productivity	Productivity – units per labor hour; billable hours percent
Injured worker	Safety – days without violations
Capacity	Capacity – equipment up or down-time
Declining sales	Sales activity – leads, number of calls, conversion rate

Below are a few examples of metrics used by top companies globally to affirm that the use of leading metrics is not “rocket science.”

Company	Leading Metric
3M	Number of new innovations Number of patents Customer service perception
Dell Computer	Customer satisfaction Days of supply in inventory
Coca-Cola	Number of cases shipped Sales growth in new markets

Your business intelligence system must avoid “GIGO”—Garbage In, Garbage Out

The challenge with B-CPR Step 3—Confirm the Quality of Your Profits is the quality of data inputs used to measure metrics.  If the data inputs are accurate, you’ll have quality results to act on.  On the other hand, inaccurate data will result in misleading information.  This is particularly true when you have data coming at you from every corner of the business. It’s tough to have confidence in your metrics tracking if you don’t have confidence in the data feeding into those metrics.

In establishing optimal metrics for your business, it is essential to design your data-collection platform to feed you accurate metric calculations.  There are many software providers available to help with this task for those management teams committed to managing their businesses through dashboards.  These valuable services will save you time chasing down the data to populate your leading metrics.  You’ll then have more free time to spend working with your metric results to identify any needed corrective actions.

Populating your lagging metrics is as simple as consistently entering your daily sales and expense transactions into your existing accounting software on a timely and accurate basis.  Incorporate into this routine a monthly bank reconciliation, and you will have the quality financial records you need to track your progress accurately.

All activity metrics need to be viewed in aggregate, and you should include some traditional financial ratio analysis.  Remember that leading metrics are meant to predict or inform on what your lagging measures are likely to report eventually.  When used together, these metrics can effectively communicate your day-to-day business operations’ quantity, quality, efficiency, and effectiveness.

The backbone of your business intelligence system is your ability to convert data into actionable information.

Data is present everywhere across your business for output as usable information.  Data represents information in a raw or unorganized form (such as alphabets, numbers, or symbols) that refers to or represents conditions and outcomes.  Businesses in the Successful and Significant stages of business evolution have developed capabilities in capturing and organizing their data for use in business intelligence reporting.

The captured data is converted into information when the following conditions are present in the data:

1. Data is accurate and timely
2. Data is specific and organized for a purpose
3. Data is presented within a context that gives it meaning and relevance, and
4. Data use leads to an increase in understanding and a decrease in uncertainty.

Information is valuable because it can affect behavior, a decision, or an outcome.     A piece of information is considered valueless if, after receiving it, things remain unchanged.

You develop insight from the information when knowledge in the form of perspective, understanding, deduction, or act of seeing into a situation emerges.  Again managers who are good at analyzing their business reports see things that need to start, stop, or continue in their business.  Those who don’t analyze their business data reporting never do.

Once informed insights are developed, smart managers will use what they learn to make informed decisions.  A decision is nothing more than a choice made between alternative courses of action in a situation of uncertainty.  The best decisions are made through business intelligence that reduces uncertainty.

The challenge with any decision is that the decision needs to lead to some form of action.  Action is defined as the process of doing something to achieve an aim.  It is a thing done, an act.  Action changes things.  Through the right actions, you better position yourself to achieve your desired results.

The purpose of working with business intelligence reporting is to accomplish the results you have set out to achieve.  A result is an outcome, consequence, or conclusion of a problem, probe, or experiment after some time.  This conclusion can be one result, multiple results, or no results.  The length of time to find a result can vary from less than a second to many years.

Below is a supporting visual that reinforces how data captured after completing an action gets converted into new information to run your business by.

Failure to convert your data into useful information means that you are allowing your data to go unused.  Unused data means you never get to see how your actions shape your results.

QuickBooks has the potential to help you start your business intelligence platform.

For those using QuickBooks, you have more than accounting software.  You have the start of a business intelligence system as long as you’re willing to make the following enhancements:

QuickBooks as the Start of a Business Intelligence System
Sales & Marketing – Get Work	1.     Use QuickBooks Customer Center as the system of record for your estimates submitted and customer database. 2.     Set up your Item list to track income vs. using outdated categories 3.     For each new customer and job for which an estimate is submitted, capture under New Customer & Job a.     Name, job title, company name, key phone numbers, e-mail, and billing address. b.     Under Additional Info capture the type of customer and indicate if they are a Key Account c.     Under Payment Settings establish what their payment terms at the time of customer data entry. d.     Use Job Info to capture Job Description, Job Type, Start, Projected End Dates. 4.     Use QuickBooks Estimates to Submit Bids and Invoices to Get Paid.  This is how you will track your bid conversion rate by sales item. 5.     Update Job Status when awarded Job and enter the Start Date. Note “When Closed”  in Job Status, and enter the “End Date” when completed. If confirmed that the job is not awarded, indicate “Not Awarded.”
Operations – Do Work	1.     Properly align QuickBooks expenses via your Chart of Accounts into Cost of Goods Sold and SG&A categories for more effective cost and expense monitoring and management. 2.     Set up staff by Department in QB COGS so you can track Revenue, COGS, and Gross Profit performance by Department. Use this data to monitor performance and share in wealth creation.
Financial – Enable     Work	1.     Use realigned QB expenses and expanded service line revenue (item list) reporting to manage P&L business performance according to a.     Actual vs. profit plan variance (monthly/quarterly) b.     Actual vs. same time period (monthly/quarterly) 2.     Use Cash Management tool to manage anticipated cash inflow timing against planned cash outflows.

Leading indicators are often related to activities undertaken by employees with lagging results, telling you the profitability of those activities.  Failure to monitor the appropriate actions and activities daily and weekly rob you of the opportunity to take a more informed path to make more money.

Would you like some help?

Click the link below to schedule a time to talk with a business and financial reporting expert to learn how best to start applying the benefits of business intelligence to your business.