Business Information Problem
Decisions made with few facts
It’s surprising how many companies make decisions with way too little information. What we don’t know usually does hurt us. Or said another way, get the facts before the facts get you. When we’re short on information we rely too much on gut, emotion and conjecture. And decision making conversations become skewed toward the person with the biggest personality or the highest rank.
To solve this problem simply become more fact based. Upgrade internal reporting across the organization and externally in terms of customer preferences, market conditions and competitor actions. And when it’s time to make a decision put the facts on the table and let them drive what you decide.
Unreliable financial information
Many smaller companies and even some large ones don’t generate accurate and timely financial information. It’s a shame and a recipe for trouble. Although companies can get away with winging it for a while, at some point it catches up with them.
It’s not just a matter of having an accurate P&L, Balance Sheet and Cash Statement. What’s also important is having a chart of accounts that lets you dig down a level or two to better understand the source of a particular number. For example, instead of putting all raw material inventory into a single account consider having several sub accounts that track different types of raw materials. Maybe break out the more important materials or the ones that have the greatest price volatility. That way when your raw material costs are high you can drill down a layer and figure out which category of raw materials it is.
Inability to measure progress and learn
We can’t know how well we’re progressing or if we’re learning what we need if we don’t have a standard to measure ourselves against. Planning establishes benchmarks to aim for and measuring gives us the feedback that tells us how we’re doing. The learning happens when we review actual results against the plan and seek to understand why there’s a difference. It’s: plan, do, measure, analyse, learn and re-plan. And by the way in referring to plans I’m including financial plans as well as departmental and operational plans, sales plans, project plans and so forth.
Business Information Problem
Results not measuring up to plan
Plans are not always achieved and that’s ok. Making, tracking and updating plans is what matters most because the process of planning forces us to think ahead and consider alternative scenarios while getting creative with what we can do. Of course chronic underperformance against plan is a problem. It either means that we are consistently too optimistic or that we are bad at executing what is probably doable. Figure out which it is and take corrective action.
When we run our business properly we are skilled at planning and execution. That’s what running a business is all about, and why we refer to companies that implement the Big Six as well oiled machines.
Think of a winning sports team. It plans out the season and each game. It collects stats and reviews them constantly to figure out where it can improve.. Your business is no different. Collect and review your stats, learn from them and improve where you need to.
The Big Six Cure
A weekly Company KPI report
A weekly Company KPI report (Key Performance Indicators) is essential for making better decisions, seeing trends, preventing surprises and keeping the conversation focused on what matters most. Department metrics measure progress against plan. Because a business runs on money we need accurate financial reporting, and because you can’t operate in a vacuum you need a process to collect external market data with surveys and the like. Finally, a management information system is vital for generating, managing, and analyzing all of your information.