Numbers and levers

In the second of this series I’m looking at why you should always present a number with a lever attached.

When you present numbers to a director or a manager what do they want?

Generally if you ask they’ll say words like ‘clarity’ or ‘understanding’ but in fact what they are really after is the information to make a decision.

The question they are really asking is ‘should I pull this lever’.

Levers can be all sorts of things – ‘do I increase my adwords spend?’, ‘Should we buy more stock?’, ‘Where should we invest our surplus cash?’

What’s important is what drives your business. There’s actually very few drivers for most businesses. British Airways for example found that the one Key Performance Indicator (KPI) for their business was the gate turnaround time. If they turned their very expensive aircraft round quickly they were able to run more routes thus increasing their profit.

The question you need to ask is ‘what thing drives my business?’ There may be more than one of course but it’s unlikely there’d be more than say half a dozen.

Some examples of drivers

If you run a shop then a key performance indicator could be the sales per square foot. If  you change your stock mix, increase your prices or bring in new lines then it’s likely that your sales per square foot will be affected. Make a change and watch how your KPI changes. You then know whether you should pull the lever that says ‘buy different stock’.

A bakery might monitor waste. If you throw a lot of bread away then it suggests you’re either not baking what people want to buy or simply baking too much. It tells you to pull the lever marked ‘change your bake plan’.

A transport company may monitor MPG. When the vehicles start using more fuel then they are either worn and in need of replacement or a service.

Of course there are things that really aren’t KPIs with levers attached. Monitoring your rent is usually not productive. Most firms rent doesn’t change month on month and because they are tied to a lease there’s little they can actually do about it. No lever. Reporting the rent is simply confusing the picture.

In summary then the figures you report need to be something you can affect by your behaviour. A lever is something that is not only variable but can be affected by management action and all figures reported must have a lever attached.

 

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