Monday, January 05, 2004

Thinking Lean about Metrics

The year ends. The rush to summarize all sorts of metrics for 2003 commences. "How'd we do?" is the cry. We want to make assessments and describe if we are OK or in trouble. This is useful.

How much more useful, though, would it be if we could make annual assessments more than once a year? Wouldn't it be nice to have a steady look at annual numbers? Not "annualized numbers" but annual numbers? And wouldn't it be way cool to do this (gasp) monthly?

We've been trying this for a while with certain metrics...and I'm really sold on it. We get a lot of mileage and it is so simple, that it is deceptive.

All we use is a 12 month rolling sum for the key metrics we want to assess on an annual basis. No new technology here...just a spreadsheet. Going down a column, we enter each month's figure for the parameter we want to assess. One column over is a formula which sums the previous 12 months. And, boom, you have an annual figure. And, you can watch the annual figure, month by month.

For example, most folks want to know how sales are doing. Will we hit our numbers?? So, go back in the financials as far as you like and put each month's sales figures. Write the formula (your first 12 month figure will occur next to the 12th month of data you insert). Drag down the formula and look at what you have. Every month, you have an annual sales figure. Look at it with a dry eye. Are you where you want to be?? If not, what can you do about it?

Say you want to have X% sales growth this year. Plot your cumulative sales figure, then add another "target line" which would increase the 12 month cumulative by X/12 % each month. Then, compare. The method works equally well with cost figures, revenue figures and non financial figures.

This simple technique takes out seasonality...a big issue for those of us in highly seasonal businesses. There is always a February and always an October in every number.

You can't fake this method either. How many of us have kidded ourselves by saying "Yeah, we're behind, but we'll make it up by the end of the year." Knowing full well we have no realistic chance to do so. Why lie to ourselves? It is a demanding taskmaster. You can have an annual assessment, every month. Why wait till the end of the year??

This method zooms smaller and bigger as well. Do you have a weekly number you pay attention to? Make a weekly assessment daily by cumulatively summing 5 days activity. Need 10 year figures? List your annual figures and sum 10 of them for an annual look at 10 year figures.

Any lean tool should allow us to see more clearly and more frequently, to make changes closer and closer to the actual action, bringing more and more people to see clearly and be involved in improvement. This method fleshes out waste-free metrics in a marvelously simple way.

My deepest thanks to Hal Macomber (read his blog) for introducing us to this 3.5 years ago...we've applied it widely and it has impact.

I hope this is helpful. Feel free to forward to a friend. Email me

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