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Friday, October 20th 2006

10:16

Predicting The Future

Last night I saw an advertisement for a movie (Dejavu) coming out where the police were predicting the future by being able to look at the recent past. Wouldn't that be a useful skill to predict the future? But wait a minute, we should be able to predict the near future by looking at the near past. As long as the processes we are managing are relatively stable and our ability to measure is good, we only need to know what to measure.

A recent American Express survey (download here) found that 64% of respondents from mid-size companies had difficulty "gathering, analyzing, and using" data about expenses. One of the factors that is critical is the speed at which you need to react. Waiting until you get the monthly financial statement and then trying to analyze the high level information presented there is deadly. For most companies, this information isn't available until around 45 days after the start of the fiscal period.

So how can you create the capability to react faster? First of all you need to identify metrics at every level of the enterprise that point to the organizational goals. If a goal is to reduce the time from customer order to shipping, the order department must be viewing their order processing time while manufacturing must be viewing their manufacturing time. Second, you need to put in place measuring that gives you the information in time to react.

And finally, you need to present the information in a manner that can be used. Charles Chewning, Jr. makes some good suggestions in "Throw Away Your Financial Statements: Managing by Metrics". In this article, he suggests that KPIs must be

  • Time Phased - Present information with context, not as static numbers.
  • Smoothed Averages - Look at the trends and compensate for volatility.
  • Have established targets - Know what you are shooting for.
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