Reporting Systems Blogs Archives

Understanding Key Performance Indicators (KPIs)

Introduction to Performance Metrics

Performance indicators are essential tools that help organizations align their daily activities with strategic objectives to meet their goals. (Parmenter, 2010). These metrics can range from tangible figures such as sales volume, call volume, and close ratios to more qualitative measures, particularly in roles without direct numerical output. Identifying performance in such positions can be challenging, with attendance often serving as a primary indicator in traditional settings. In remote work environments, however, monitoring attendance and ensuring productivity presents unique challenges, as managers cannot directly observe their employees. This lack of visibility can lead to discomfort among managers, some of whom may doubt their employees’ ability to maintain discipline and meet deadlines without direct supervision (Delanoeije & Verbruggen, 2020; Kaplan et al., 2018).

Distinguishing Productivity from Performance

Productivity is defined as the ratio of output generated per unit of input (Drumea, 2020). While determining inputs and outputs can be complex, it is crucial for managers to set clear expectations and goals for remote workers. It is essential to understand that productivity does not equate to performance directly, although some managers might conflate the two (Drumea, 2020).

Key Performance Indicators (KPIs): The Backbone of Strategic Planning

The Austrian government’s 1996 publication introduced the concept of measuring performance using Key Performance Indicators (KPIs). KPIs are critical measures that an organization considers vital for its success in the short and long term (Parmenter, 2010).

There are seven characteristics of KPIs. These include:

Nonfinancial measures

Frequently measured

Acted on by the CEO and senior management

Indicate what action is required for staff

Measures that are the responsibility of a team

Have a significant impact

Encourage appropriate action

True KPIs are monitored with high frequency—hourly, daily, or weekly. If monitored less frequently, they do not qualify as KPIs. Moreover, KPIs should not be directly associated with financial metrics to distinguish them from key result indicators. These indicators should vary across different workgroups within the organization, aligning with specific goals and significantly influencing the organization’s objectives (Parmenter, 2010).

Challenges in KPI Design and Implementation

The process of designing and implementing KPIs requires careful consideration. Common pitfalls include defining too many or too few KPIs and failing to align them with the company’s overall strategy (Purevsuren et al., 2020). An imbalance in the number of KPIs can lead to either a lack of focus on essential outcomes or an overwhelming focus on non-critical measures. Furthermore, if the KPIs of individual business units do not align with the organization’s strategic goals, it can result in the company failing to achieve its objectives due to a lack of focus on the key activities required for success.

References

Delanoeije, J., & Verbruggen, M. (2020). Between-person and within-person effects of telework: A quasi-field experiment. European Journal of Work & Organizational Psychology, 29(6), 795–808. https://doi.org/10.1080/1359432X.2020.1774557

Drumea. C. (2020). Work-related stress and subsequent productivity in a teleworking environment induced by pandemic-related confinement. Evidence from the public organizations. Ovidius University Annals: Economic Sciences Series, XX(1), 337–341

Kaplan, S. Engelsted, L., Lei, X., & Lockwood, K. (2017). Unpackaging manager mistrust in allowing telework: Comparing and integrating theoretical perspectives. Journal of Business & Psychology, 33, 365-382. https://doi.org/10.1007/s10869-017-9498-5.

Parmenter, D. (2010). Key performance indicators (kpi) : Developing, implementing, and using winning kpis. ProQuest Ebook Central 

Purevsuren, N., Dashdorj, Z., Khujuu, T., & Norinpel, E. (2020). Selection and optimization model of key performance indicators. 2020 22nd International Conference on Advanced Communication Technology (ICACT), Advanced Communication Technology (ICACT), 2020 22nd International Conference On, 190–196. https://doi.org/10.23919/ICACT48636.2020.9061560

Implementing Best Reporting Practices In Manufacturing

Whether your business is a startup, a growing organization, or a business going through changes, developing accurate and relevant reporting practices can feel overwhelming. Doing so, however, is crucial to delivering a quality product with a profitable margin. By utilizing sound reporting methodologies, your business can plan strategically for material budgeting, productivity, product quality and cost, and safety. Further, implementing best practices in reporting helps with understanding and correcting problems with products returned by customers.

So how should your business go about establishing best practices in reporting? Zach Hale answers this question in a Software Advice article titled “5 Effective ERP Reporting Strategies for Your Business.”

Make sure your data is clean and accurate.
Track only what you need to track.
Allocate resources for data collection, analysis, and support.
Prioritize reporting development in future growth plans.
Choose an ERP with the right reporting capabilities.

As a business leader, it is imperative to be forward-thinking. One of the key ways to do this is to train your employees specifically in what and how you would like reported. Without clear expectations in place, employees may not view reporting as part of their job and often report inaccurately based solely on memory or do not report at all. Automated reporting is not necessarily the answer. Machine operators, welders, and others in your business can still be responsible for manually recording each day. They are the experts in their field and are best equipped to identify capacities and barriers. Your organization must provide training and clear expectations to any employee expected to report data, and should allocate resources with this in mind. As with any expectations of employees, reinforcement through positive recognition goes a long way.

How do you establish what accurate reporting looks like for your unique business? The first step is to identify the capacity of your operation. For example, how many widgets per hour or minute can be produced at a perfect run rate? In order to determine this, perform a time study. Remove any lost time from your study (e.g., the machine operator had to go retrieve raw material or make machine adjustments), as these things can be addressed and remedied. Once your operators agree on the number of widgets per hour or minute, your business has established a “capacity.” This is a critical part of planning and reporting and should be your business’ daily or hourly goal. This process for capacity should be completed for every product your business manufactures. See below for an example:

Next, decide what components of your manufacturing process are most relevant to your goals (e.g., product quality and profit margin), and make recording those components a priority. Each facet of your manufacturing line that affects these goals should be captured individually. Overanalyzing too much irrelevant information can lead to “analysis paralysis,” which can cause challenges when it comes to making goal-based business decisions. See below for an example of an easy-to-read, succinct yet detailed metric of how the operation performed to capacity, which allows for insight into any problem areas.

One of the major mistakes in reporting is to look at only one snapshot in time, when trends can play an important role. Once your organization has reported accurately for weeks or months, establish a historical performance for each item you are tracking, then set a reasonable goal to improve your numbers.

The chart above shows both base and goal numbers in their own columns, along with the date’s performance. Notice that some numbers are grayed out. This is because an individual area of planned-to-actual may be consistent enough on a daily basis to have a hard base number. If there are variables in the quantity of widgets run or the quantity of scrap and rework, however, the recorded percentages provide an accurate comparison of performance. With this information your organization can see trends and make decisions based on actual data.

In the example above, the run performance and scrap rate are an improvement over how the organization has historically performed, but the rework rate is higher. Initial response from management may be to identify why the rework rate increased and what actions need to be taken to prevent a recurrence. Depending upon the product, decisions could also be made in regards to completing less than planned or falling short of the goal. An inventory order may be treated differently than a just-in-time order to meet customer commitments. Though while the planned quantity should be based upon the observations (capacity), the committed quantity should be +/- 80% of that quantity, as world class is measured at 85%.

The longer your organization can consistently track data cleanly and accurately, the better you can analyze trends against time periods. See the example below for a fuller picture of performance:

Here we can see that the productivity has improved from historical performance and is averaging close to the goal. It is important to keep in mind that the “Date” may be in days, weeks, or both, depending upon your organization’s product and lead time. In this example, we’ll assume that the organization had previously identified the reason why it was averaging only 68% completion and implemented a plan to improve, which is working based on the evidence. The scrap rate continues to be above both the base and the goal, and the organization should have actions or data collection in place to understand the root cause of this in order to effectively address the problem. The rework shows a couple of high periods, but overall is close to the goal, which would warrant positive reinforcement for the operator.

This same reporting format can also be used to report all areas and equipment, along with planned-to-actual deliveries and safety, allowing for a simple one to two page report on a daily or weekly basis that covers the organization’s entire operational structure. As applicable, additional line items and measurables may include planned-to-actual labor hours and costs along with a labor-cost-per-unit factor, machine-cost-per-hour, machine uptime hours, or whatever it is that your unique business needs to track in order to deliver a quality product with a profitable margin. The importance, though, is to understand the trends on each of the key measurables to systematically address issues so that attainable goals can be set and your business can continue to improve.

To learn more about how you can implement best reporting practices in your business, reach out to our team at Cogent Analytics. We will begin our Discovery Process, which is tailored to the unique needs of your business, to create a roadmap to a more successful, sustainable future for your organization.

What Is Supply Chain Risk?

What do you know about critical supplies and the path travelled to your door?

Discussions of risk have been at the front of our national and international dialog for over a year now. The Covid 19 pandemic has brought the idea of risk of death and illness into our daily thoughts. If I go out to a public place, what is my risk of catching the virus? If I get the virus, what is my risk of hospitalization? If hospitalized, ….

Supply chain risks have always been present, and the sources are varied. Lately, it appears we are adding new risk “opportunities” as each month passes. We will discuss a few of these and ways to understand and react to conditions as they change. We can never eliminate risks, but with a reasoned approach and common understanding, we can minimize damage done to any disruptions. Let us look at a few significant and unique events of the past ten years:

Japan March 11, 2011

An historic earthquake caused a Tsunami that very quickly devastated parts of the east coast of Japan. The wall of water ran up to 6 miles inland and reached land over 125 feet above sea level. Walls built to shelter the coast were overrun and destroyed. The initial quake lasted nearly 6 minutes – hundreds of aftershocks followed. Sections of the northeast coast of Japan’s main island dropped by two feet. The island of Honshu shifted east by 8 feet. The length of a day shortened by a microsecond as the quake changed the rotation of the earth. In less than 24 hours, the tsunami reached south America and Antarctica.

This quake and resulting tsunami left thousands dead and many more homeless. Many businesses and homes in the path were crushed as the water moved rapidly inland. When the ocean retreated from its inland progress, all the people and buildings were carried out to open ocean and lost. One of these companies made the only approved chemical component that was required for every paint maker producing body paint for a large international Automaker. Within minutes, the entire global supply chain of approved paint was disrupted. This was just one small incident of many thousands.

The risk assessment when they built the retaining walls to protect against the tsunami was that the height was more than adequate for any conceivable earthquake. March 11, 2011 was an earthquake and resultant wave beyond any worst-case scenario comprehended.

Economic “Bubble”

Economies can change rapidly. The automotive industry was relatively stable for years prior to 2008. As economic panic set in, companies’ shutdown production as their customers called to stop all purchase order activities until further notice. The lights went out in most every tunnel. Massive drops in customer and dealer orders occurred as the economy appeared to be in a free fall state with no clear bottom in sight. The results to the supply chain were felt immediately. A prominent supplier of machined parts decided to sell off time on machining centers at deep discounts. Equipment was repurposed to serve the new business at very low or no margin. As the automotive business improved and started a significant recovery and expansion, this company ran out of capacity. Due to the nature of the work, the lead-time to obtain, set up and run effectively was estimated to be no less than 28 months. This one plant served all major manufacturers operating in North America and did not have the machine capacity to supply all automotive demand. Automotive OEMs were put on allocation and rushed Supply Management teams to the supplier to communicate supply conditions on an hourly basis. Vehicle production was slowed and, in some cases, stopped. It took only a few weeks to reduce or divert capacity. It took nearly two years to build it back.

Global Health Crisis

The global pandemic of 2020 has rearranged or eliminated demand in many industries. World political leaders are pouring cash into economies to offset unemployment. Some companies have closed while others found new markets or ways of getting product to the end user. Demand and supply have been far less predictable than in prior years. Some companies have changed their business model completely and do not serve the same customer needs as they did over a year ago. Some organizations are simply gone. Labor shortages due to restrictions, quarantines, and illness have crippled some businesses even though materials and equipment are in good shape. Many hoarded basic supplies (toilet paper concerns anyone?) Supply is beginning to return to pre-Covid conditions but will never be the same in all respects.

Accident (Operator error?)

Just recently the large cargo ship Evergreen ran aground blocked the Suez Canal. Containers, as of this writing, are still not moving even though the ship is freed from its grounded condition. 20,000 shipping containers have been stuck for weeks and there is no anticipated date when they will be able to move. Many more ships were anchored waiting for the canal to reopen. There are container ship tracking websites to see the position of any ship carrying your containers – are you using those to confirm arrival dates?

Your Business

Was your business disrupted by any of these events? What do you know about your suppliers’ sources of their raw material, information, or service? What about their sources? The destruction of a small (10,000 square foot) company making the paint component affected hundreds of manufacturers around the world in addition to potentially affecting every dealership and body/paint shop globally.

Most every business understands its direct (tier one) supply situation. Many have some knowledge of the basic components or materials going into your supplied product. Very few organizations have data on the many tiered layers of supply source and where they are located.

Do you have supplier data that clearly lets your team to find true capacity, quality performance, location, financial condition, future business projections, and an understanding of their supply risks? Do you know your suppliers’ suppliers (tier 2) or theirs (tier 3), etc. To the automotive manufacturer in the example above, the component supplier was a tier 4 or 5 supplier. As they developed and approved the source, key team members in the OEM were aware of the company and its importance in the supply chain. Most of the intermediate users of this material were not aware of the risk of this single sourced situation.

Potential areas of supply risk:

Supplier financial failure or difficulty
Political – import tariffs, blockades, war
Currency – exchange rate fluctuation
Environmental – restrictions on chemicals and hazardous materials
Natural disasters – hurricane, earthquake, flood
Labor disputes
Labor shortages
Capacity constraints – competing demand, temporary or longer-term reductions in capacity
Transportation – The container ship Evergreen is one, equipment and driver/operator shortages, strikes
Raw material shortages
Climate – potential for more extreme weather conditions
Single sourcing
Please add any industry specific risks as you are able to identify them….

Evaluating and Mitigating the Risks:

Analyze your supply chain. Gather as much data as to the location, size, condition of as many tiers of the chain (including customers) as possible. Understand real capacity of your suppliers – not the quoted or stated capacity. Visit key supply sources and take actual measurements. Keep this information up to date.

Evaluate each element for risk and assign a numeric value (weighted for risk type, probability of occurrence and effect if occurred). Utilize a FMEA format for ratings to keep things objective and data driven. Add a factor for “sense” – there is often value in stating something that can be intangible. That “can’t quite put my finger on it or express it exactly”, but nevertheless gives you concern. Don’t discount the value of a “hunch”. A risk calculation matrix could look like this:

For the Risk Calculation section, use 1 as low probability of potential to occur (a), severity if occurred (b), and ability to detect ( c ). Beginning with the highest rated items, make a specific plan to reduce the risk. In the “Risks” section, you can indicate with a check mark or elaborate with descriptions of the specific nature of that section. Supplier location data can be used to quickly sort for any tiered supplier location in the event of an event in a specific geographical location. Indicate the tier relationship to your business with the tier 2, 3, and on under your direct supplier so that you maintain the relationship to the direct supply source.

This could be adding sources, requesting changes in production location or methods. Evaluating alternative materials. Establishing better and faster communication regarding incidents and conditions. Changes in inventory policy – this can be short term to “weather” a short-term situation or long term to address systemic risk. Whatever it is, communicate this throughout your organization. When an issue arises anywhere in the world, you will be better equipped to identify any potential problems as early as possible and have a greater chance of avoiding problems. Take action based on your measure of risk. Execute the plan. Reevaluate the risk after implementation. Plan Do Check Act (repeat). Establish set goals to reduce the overall risk rankings (how much, by when, who is responsible). Communicate this throughout your organization.

How Accounts Receivable Impact Cash Flow and Net Profits

The extension of ‘credit’ is often very lax in the startup phase of a business, and usually, no written policy exists. Past due accounts receivable is often a result of not clearly defining the customer’s expectation, granting credit to customers without consistent criteria, and a lack of disciplined follow-up ofaccounts receivable by the business. Businesses with significant past due balances have ‘trained’ their customers to expect a lax or non-existent collections effort.

These outstanding receivables are costing the business money. The business has already expended time, resources, and cash on providing the product or service to the customer. No matter what type of accounting is used, Cash or Accrual, the business has not received payment, and therefore ‘cash.’ Consider past due balances as a ‘gift’ to the customer until paid. Once a business owner recognizes that they are giving away their hard-earned business, they are more likely to pay attention to past due to AR.

Start By Reviewing The Balance Sheet and Accounts Receivables Aging Reports.

Look for ‘past due’ account balances and aging. Determine the percentage of aging based on total AR or Sales. If there is a significant amount of ‘past due’ AR, it is likely that much of it has been ignored due to infrequent reporting or not wanting to ‘aggravate’ existing customers by requesting payment, or perhaps no policy is in place to define credit terms or collections policies. The first step to resolving large past due balances is to STOP extending credit without clear criteria, customer vetting, and adherence to a written policy at every level.

The next step in the process is to analyze past due credit balances, starting with the most significant balances. First, make sure all customer credits have been applied to the appropriate invoices. This is referred to as ‘housekeeping’ tasks. Most successful past-due collection efforts start with the 61–90-day balances. If the client has a great deal of over 90-day balances, much of this debt will be difficult to collect and may need to be ‘written off’ as a Bad Debt expense. Bad Debt expense goes directly against Net Profits and is contrary to achieving long-term wealth and retained earnings.

Establish a Collections Approach

The recommended past due balance collection approach is to start with a phone call. Phone calls are more personal and offer an opportunity to connect with and understand your customer. If you must leave a message, identify yourself, state the reason you are calling, include pertinent invoice information, and request an action such as ‘Please call to resolve past due balance today.’ Sometimes, this process discovers something as simple as an invoice that was lost or misplaced. These situations are easily remedied, result in payment, and often establish greater customer loyalty for understanding and resolving the issue. During the initial phone call, it is always important to establish that there was no problem or issue with the product or service.

Always attempt to get payment over the phone if possible. It is also best to give the customer a couple of discrete options such as ‘pay half today, and the balance in XX Days’ instead of asking open-ended questions like ‘when can you pay the past due balance?’

A detailed log of collection activity and conversations is essential to reducing past due balances. This log is helpful as the process progresses and signals to the customer that you are serious about collecting past due balances. Immediate follow-up to confirm the phone conversation is another key success factor in managing past due balances. An email or letter sent immediately after briefly recapping the conversation and commitments may help reinforce the collection action. These written follow-ups also are referred to in potential future discussions if obligations are not kept. Make sure to identify to whom you are speaking in notes and follow-up correspondence. Often you need to escalate who you need to talk to if past due balances continue to be unresolved. If a customer gives an excuse that they need someone else to do something, then contact that ‘someone else.’

Establish Solid Policies and Stick To Them

Good AR practice starts with a solid credit policy and approval process. STOP the extension of credit without a proper credit approval process immediately. If a Credit Application exists, does it gather pertinent information on the potential account? This should be tailored to the business and consider the conditions that led to existing past due balances and seek information to qualify accordingly. This vetting process is critical to keeping accounts current, and bad debt write-offs to a minimum. If you require a customer to provide banking or credit reference information, follow up to make sure it is accurate and a good credit risk. This step is often skipped but has everything to do with a customer’s creditworthiness. The process of filling out a credit application causes the customer to evaluate their situation and potentially discourages them from seeking to obtain credit currently. By requiring business information, including billing contacts, business longevity, and references, the result of collecting AR balances improves dramatically. Several independent agencies such as Dunn and Bradstreet exist for evaluating creditworthiness and should be used where appropriate. Another good technique is to require that a customer establish good credit by paying for products or services for several transactions before considering extending credit.

Define and implement an AR and Credit policy with buy-in from Owners, financial managers, and sales personnel. Start with a good template and tailor it to the business.

Buy-in from every part of the organization is essential, involving others in the development and implementation process. The credit portion of the policy should establish the vetting process, which makes the final decision, and establishing the ‘credit limit’ extended to each customer.

The AR policy should establish the steps the company will take in monitoring and collecting past due accounts.

Look Within Your Own Business

Often a business owner is quick to judge its debtors harshly, and yet has aging Accounts Payable as well. An assessment of the total AR and AP encourages a complete picture of the business’s cash position, and highlights the need to reduce AR and AP. The old adage of ‘treat others how you would expect to be treated’ goes a long way. Regular review of AR aging reports, along with clear AR and Credit policies, keeps past-due account balances low and bad debt to a minimum.

Utilizing tools such as a cash management system, cash conversion cycle calculations, AR-AP worksheets, and working capital metrics, you will establish good processes and measures to achieve a good cash flow position and minimize bad debt expense. By proactively managing and measuring your cash flow accordingly, you will be able to maximize wealth generation and increase retained earnings.

Metrics to Use to Manage Business by the Numbers

Which metrics should businesses use daily? Choosing the right metrics can often be challenging for small business owners. Many times the choice made is not to look at any metrics at all and still manage by gut feel, doing the things that got them to where they are today. As small businesses grow, the gut feeling of an owner may become less and less accurate as the business accrues more employees, more expenses, and higher costs than when the business first started. Every business needs a set of metrics to review on a recurring basis.

Identification of what to measure is the first obstacle. What to measure depends on a combination of the industry and the specific business. Metrics should primarily be focused on managing profitability. For construction and service technician-based work, this will include direct labor and materials, as those items will typically make up a majority of the cost of goods sold. In a hospitality business like a bed and breakfast or Airbnb occupancy, and the average nightly rate will need to be monitored. Small businesses will need to consider the amount of effort it will take to gather essential metrics and the source. In small operations with less than ten employees, it may be difficult to have anyone designate time compile metrics. Once the required metrics are identified, they must be reviewed.

Metrics need to be reviewed at regular and scheduled intervals. The intervals will depend on the type of work being performed. A heavily automated manufacturing process making small parts may need hourly production monitored. A high-tech research and development department may only require weekly updates. Most small businesses will fall somewhere in between, with daily being a great starting point. When reviewing the metrics, the actual performance must be compared to the plan. When comparing the actual to the plan, the variance will be the result. If the variance is good, a small celebration may be in order. If the variance is unfavorable, corrective actions must be taken to preserve profitability for the company.

Taking corrective actions due to unfavorable results will assist the company in improved performance levels. This step will take proper delegation and oversight by ownership to ensure required changes were made and made correctly. If this step is not taken or taken poorly, all positive efforts identifying, capturing, and reviewing metrics can be quickly unraveled and even have adverse effects on the business. Employees and company leadership tend not to follow improvement efforts if they are not driven and backed by ownership.

Successful businesses are set up to manage by the numbers. Foundation work must be completed before a small business owner can manage by the numbers on a consistent basis. What to measure must be outlined. When to look at the metrics must be identified. Employees must observe a process to ensure corrective actions are taken. A solid foundation of metrics and an effective review process will help small business charge towards desired results.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

From Behind the Desk: Excuses

EXCUSES – As business owners we sometimes need to sit back and take a look at a single work day. During that day how many excuses do we hear from our people that are simply attempts to explain away poor performance? Worse yet, how many excuses do we as business owners make not only to ourselves but to our employees as well? Let’s get one thing straight: as as a business owner there is a pretty good chance that you are the only one with “skin in the game”. When things are going well you get and deserve all of the accolades. When they are not going well the same thing holds true. You and your family are probably the only ones with financial risk in this endeavor.

Excuses run the gamut everywhere from the economy, to the political party that’s in office, to the banks, to the housing bubble that burst, and every other one you can possibly think of in between. The fact is there is little if anything that you can do about them. Unless you are ready to fold your tent and go home, you must find a way to orchestrate the success of your business in spite of all of them.

Step number one: Stop Making Excuses and Stop Accepting Them! Perhaps you might consider putting a sign on the front of your desk, No Excuses Allowed!

Business Goal Examples For Any Small Business

Business goals are more than just numbers, they are what drive your business forward. As an SMB/SME owner, you have a purpose with your business just as you have a purpose in your life.

Goals are not the end game. They are the beginning of the ‘game,’ business goals are set for a certain period or market status and are continuously reviewed for modification of business strategy or fit with organization status.

A significant part of the setting, validating and measuring business goals is to have them reviewed by a ‘board’ of objective advisors you can trust giving you accurate feedback.

Business Goals Things to consider

- Set goals that can be realized while still being challenging

- Communicate the Goals with the team that will work with you to accomplish these goals

- Document and Share the goals with the appropriate outside audience, your financial institutions and sometimes your customers as it may fit into your business planning.

Review the Goals with a defined timing of each quarter and year

Some of the various types of goals are:

What do you want from creating and driving the business?

- Strictly Financial success?

- Something for family continuity in the business?

- Contribution to the craft of the business?

- Recognition as a leader in this type of business?

Contribution to the community?

Some Potential Financial goals for your business could be:

- Return on Sales

- Net Profit before Taxes

- Growth Factors

- Return on Investment (ROI)

Cash flow requirements

Potential Marketing business goals:

- Volume of Units

- Size of business as to $’s

- Location of business

- Markets addressed, geographically and customer segments.

- Market Share (this is sometimes a problematic area given that market assessments are not necessarily easy to attain)

Price Points for product/service

Operational business goals:

- Size of Business as to employees

- Size of business as to facility requirement

- Owner’s time spent in business by week, month, year.

- Plans regarding Personnel:

- Only hire local employees (or not)

Only hire (preferred) employees with a specific background

And it is Important to have an Exit strategy:

At what time/size/financials sell the business or transfer to family/other.

These are just some examples of business goals to set for businesses of any size.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Excel Features Less Known For Entrepreneurs

An SMB should use every useful tool that makes sense; the critical test is to make sure the tool makes sense for your business and is not just an over-promoted feature that will take hours from your productive business hours. Here are some Excel features that are lesser known, but worthwhile for entrepreneurs to know.

Index and Match vs. VLOOKUP

VLOOKUP is a highly featured function in Excel so much that it has become unfortunately a too simple measure to screen candidates out as to Microsoft Office abilities.

The main issue with VLOOKUP is that it is one-eyed, it can’t look left in the spreadsheet.

Excel offers two primary lookup methods: VLOOKUP and INDEX-MATCH. Although the two ways are similar, INDEX-MATCH is the most powerful.

The VLOOKUP function has these arguments:

=VLOOKUP(lookup_value, table_array, col_index_num, range_lookup)

The range_lookup argument is optional, often overlooked, but very useful. This is because range_lookup determines whether VLOOKUP returns an approximate match or an exact match.

Although Excel uses a different technique, here’s a simple way to think about how approximate matches work:

Excel works its way down the first column until it finds a value greater than the lookup value. Then it backs up one row to return its results. If the lookup value is greater than the last number in the column, it delivers that last result.

When Should You Use an Approximate Match?

The only time you should use an approximate match is when you DEFINITELY need an approximate match. If you need an exact match, and if you want accurate results, NEVER use an approximate match.

By default, VLOOKUP returns an approximate match. This is unfortunate, for two reasons. First, most Excel users need exact matches most of the time. Second, approximate matches are risky, because they can return false results.  If you need an exact match, and if you want accurate results, NEVER use an approximate match.

Excel Features VLookup and Index Match

This figure illustrates a typical occasion when approximate matches are needed. The figure shows a schedule of quantity discounts. If a purchase is between one and four units, no discount is offered. A purchase from five through 24 units gets a 5% discount, and so on.

Excel’s Best Lookup Method: INDEX-MATCH

The most powerful and flexible way to look up data in Excel is the INDEX-MATCH method. It relies on two Excel functions:

=INDEX(reference, row_num, column_num)

reference—a range of cells
row_num—the row in reference from which to return data.
column_num—the column in reference from which to return data.

If the reference is one row or column, the INDEX function can use this syntax:=INDEX(reference, cell_num)

=MATCH(lookup_value, lookup_array, match_type)

lookup_value—The value to match in lookup_array.
lookup_array—A range of cells with data.
match_type—Specifies how Excel matches the lookup_value with values in the lookup_array. For exact matches, always use 0 for this argument.

This blog has provided an overview of a critical data lookup feature in Excel. It is vital to identify what is expected out of the Excel workbook before structuring the worksheets and formulas. Other formulas for small business owners to know can be found here.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Time Study For Small Businesses

Where does the time go? Can a procedure be more efficient? How long does it take an employee to finish a task? These questions and many more are posed by business owners every day. One of the best ways to find the answers is by doing a time study of your business. 

Time studies have been a part of industrial productivity improvements for centuries. In the past, these methods have included costly time measurement and method specialists working minute by minute on each task analyzed. 

A significant issue with time studies in history is that workers behave very differently when someone is watching over their shoulder. 

Modern methods utilizing smartphone technology now allows small business owners to execute this analysis at a minimal cost with much better and proven results.

The ‘trick’ is to install a Time Sample App on your smartphone and attach the phone to a discrete placement such as an electrical conduit.  Using this you can video a specific work task and without having to watch it for hours identify start and parts and finish with clear time stamps. 

See figure one. There are numerous low-cost smartphone holder attachments; this specific one is a flashlight magnetic holder that one can find at the hardware store for $10. 

Figure One: 

time lapse study smart phone attachments

Legalities: 

Timestamp cameras do not record audio which would be an agreement requirement as to who is audio recorded. So, there is no need to contact your attorney. Videotaping of your site is same as Safety/Break-in/Burglary video coverage which is in your control as a facility owner. 

Though for integrity with your personnel you should inform them that you are taking some video samples for training purposes, which is correct as this method is very useful for making internal training videos as well. 

Do these time studies over time, over several days, and weeks, and you will have very useful results at a quite minimal cost. And another ‘pair of eyes’ which every business owner needs and can use.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

3 Steps to Effective Time Management

“Time Management” is one of those phrases that a lot of people throw around, but very few know what it means, and even less practice effective time management.

The concept of time management is not hard to understand. It is merely the ability to complete tasks and achieve goals by effectively planning and controlling how you spend the hours in your day.

The doing of effective time management is very hard to accomplish. Most business owners do not have the required skills. Some of the consequences of having poor time management skills include bankruptcy, employee difficulties, supervisor under-performance, poor cash flow, quality issues, low profit/margins and not enough sales.

This is why the majority of business problems are self-generated, and well within the control of the owner to fix. According to the Association of Insolvency and Restructuring Advisors, only 8% of business failures were caused by circumstances entirely out of the owner’s control.

The #1 reason owners give for not dealing effectively with problems is, “I don’t have enough time.” But, what they should be saying is, “I don’t have effective time management skills.”

Let’s look at how you can turn your company and life into the one you have always wanted.

Step 1 – Commit to change.

There is a time in every owner’s life when he has to decide to accept all the duties of ownership. Most do not step, they only go half-way and do the ones they feel comfortable with. It is the very few who commit to doing what it takes to have a long term, successful company.

Are you finally sick and tired of being sick and tired? Are you ready to go to the level?

If so, the first step towards effective time management requires you to understand what you are committing to. You are going to have to change your behaviors, and that takes time, education, a willingness to take other’s advice and effort. You will be learning new ways of acting which will be uncomfortable and not come quickly.

Make no mistake – if it were easy everybody would be good at controlling their time, and they are not, which is why most businesses fail or limp along.

Step 2 – Find a strategy that works for you.

There is no quick fix, special formula, sure-fire plan or a magic wand for effective time management success. Successful time management requires basic common sense coupled with discipline and persistence. This is why in Step 1 you committed to getting out of your comfort zone and learning new techniques.

Millions of words are written and spoken about the best strategies for managing your time. Do not get overwhelmed; you only need a small amount of them. Different things motivate people and learn in different ways. So, develop your time management strategy by using a method that works best for you – read books and/or online articles, watch TED Talks, consult one-on-one with an expert, go to seminars or get a mentor/coach.

Beware – owners often get stuck in Step 2. Too often they mistake planning for action. Do not confuse being busy with being productive. There are a lot of excellent, never used time management plans sitting in drawers. Thinking and strategizing are important, but never a substitute for action.

Step 3 – Take action, walk the walk.

In Step 3 you will work on replacing old, ineffective time management habits with new, effective ones. Old habits are hard to break, and nobody gets it right the first time, let alone the first ten times. The key to this step is fortitude, patience, and persistence. It will take action, time and discipline to achieve the results you want.

At first, you will be experimenting with and adapting your strategy; even the best plan requires tweaking. Once you are living it, you will see what changes to make. A flexible approach and mindset allow you to stay open to meeting new challenges and take advantage of unforeseen opportunities.

Doing the work and making the changes effective time management requires is tough for business owners. Too many talk the talk but do not walk the walk.

good time management for small business owners

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Which Fiscal Year Methodology is Right For You?

When you start a company, one of the first things you must do is to determine how to define your fiscal year for financial reporting. There are several ways in which a company can define a fiscal year, and, the two most popular are the Calendar Month and the 13 Period Calendar.

Both methodologies have their good points and drawbacks to consider, so you may want to spend some time making the final decision. The Calendar month method is straightforward to use for fixed expenses, which allocates 8.33% of the full year amount in each month. Expense items in this category would be Amortization, Depreciation, Monthly Dues and Subscriptions, Annual Insurance Premiums, Licenses and Permits, Rent and/or Lease Expense, even recurring revenue from a customer to name a few. The variable revenue and expenses would be recorded in the month that the sale or cost is incurred. The 13 Period Calendar is slightly more complicated because you have 13 four-week periods in normal years which is 7.69% of the full year amount to be allocated over the 13 periods. The variable revenue and expenses would be recorded in the period in which the sale or cost is incurred.

Because the 13 Period Calendar is only 364 days long, every 5 or 6 years, depending on the number of leap years, there has to be a 53rd week added onto the last week of December for your fiscal year. The variable revenue and expense would still be recorded through the 35th day or end of the 13th period. These amounts would usually be more than the other 12 periods because the 13th period is 25% higher than the other 12 periods. On a weekly basis, the fixed revenue and expense would be less than the other 12 periods because you would be allocating four weeks of fixed, variable and expense items over five weeks instead of four weeks.

The methodology of the Calendar Month is the first day of each month through the last day of each month: January, March, May, July, August, October and December have 31 days, April, June, September, and November have 30 days, and February has either 28 or 29 days. This may seem simple enough, but the issue is how to allocate the monthly sales and expenses out to each of the days of the month. Most companies using the Calendar Month methodology use the 5-day work week as the basis for allocating revenue and expenses over the 7-day week. This methodology is typically used in smaller companies with the thought being that employees work five days a week and get paid for five days a week, and, therefore, they should record the revenue and expense over these five days. This may sound simple enough, but, as we will see there are some nuances in planning for the year over year changes in the number of days in each month. In the chart below, you can see that in years 2015 and 2016, the difference between the months of January, March, July, August, October, and November are two days versus the prior year, a 10% difference, so when doing a budget for the next fiscal year you would need to adjust the monthly sales and expenses accordingly. The good news in using the Calendar Year Methodology for your fiscal year is that all of the major Holidays, except Easter fall in the same month each year.

The Chart below shows the Number of work days in each calendar year.

Fiscal Year and 13 Period Year Explained Chart

The 13 Period or 52 Week Calendar is typically used by larger manufacturing companies and large retail establishments, which operate seven days a week. The 13 Period or 52 Week Calendar still has the Easter issue, but it also has one Christmas falling in the 53rd week. A benefit of using the 13 Period or 52 Week calendar is that you have a good record of the true daily sales activity for each week. This will allow you to identify the high sales volume or holiday week sales and move these weeks around when you are creating the sales budget for the next fiscal year. Since the 13 Period Calendar is consistent throughout the year, you don’t have to spend a lot of time analyzing the number of days in each month which occurs in the Calendar Month methodology.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Identity Theft: How Vulnerable Is Your Business?

According to the Bureau of Justice Statistics, more than 17 million individual American citizens are affected by identity theft. Since the larger data breaches have occurred over the past year, the larger corporations have taken notice and worked fast and furious to get their systems protected. Today, according to the Department of Homeland Security (DHS), approximately 31% of the attacks that are occurring, are against small businesses and organizations that employ 100 persons or less.

In an article published by the Identity Theft Resource Center (ITRC) ” DHS, in partnership with the Secret Service and others, said the attacks were pervasive, with ID-theft criminals scanning computer networks of businesses for vendors or employees who had remote access. passwords for network access.”Hackers then were able to run programs to attain usernames and usernames and passwords for network access.”

When a small business is attacked, not only is the very livelihood of the business and its owner(s) threatened, but a small business’ employees and customers are also at risk. Small businesses are far more vulnerable to identity theft than much larger companies and corporations for the mere fact that perpetrators are fully aware that small businesses generally have more cash and/or credit available than larger corporations.

Small Businesses are Most Vulnerable If:

A criminal manages to ‘hijack’ or obtain your business information. They will likely acquire credit for themselves with your business information and under your business name. If your information is acquired by a thief, it’s probable that you won’t be aware until you begin receiving bills electronically or otherwise. At this point, it’s likely that extensive damage has already occurred affecting not only your reputation and business finances but your personal finances.
AND/OR
If you own a business that collects an abundance of personal information, i.e., birthdates, social security numbers, account number information or any other personal information, there are consumer protection laws that will make you entirely responsible if you’ve failed to protect your clients/customers from identity theft. At this point, your business is likely spiraling into an abyss and could easily place you in a position of losing your business entirely while facing years of cleaning up a virtual disaster. It’s a good idea to consider doing a monthly or quarterly security check-up to ensure that your systems are updated and secure.

To Avoid Small Business ID Theft Disasters Begin by Following Digital Security Best Practices as Follows:

Eliminate all paper billing that comes to you. Paper billing is too easy to acquire if you fail to shred it.
It’s not always possible to eliminate all paper billing so do yourself a favor and invest in a high-quality shredder. Even better hire a shredding company who will come to your business and pick up your paper and shred it for you and recycle it.
There are many businesses that absolutely must keep some paper files. In this case, consider a multiple level security filing systems. Simple, locked filing cabinets are vulnerable. Consider placing your locked filing cabinets behind closed and locked doors whereas only one or two trusted members of your personnel have access to gain entry.

As Soon As Your Paper Systems Are In Place Add These Best Practices:

Provide a secured internet router
Provide a secured wireless network system
Provide VPN for any external access
Be certain to implement strong firewalls
Provide protected physical access to your company’s computers and systems
Use automatic software (Windows or other operating systems) updates
Limit the software that your employees are allowed to install
Secure ALL offsite data storage that you use for your business
Continue to create multiple and redundant data backups
Keep an offsite copy of your backups
Most importantly, train your company employees with regard to digital security practices

From security inception, monitor your business credit reports as often as possible or delegate this task to someone you trust. This small act will help you immediately spot any potential tampering. If you spot it, you can stop it immediately.

Carefully Select Whom Will Have Access to Your Data:

Just because your company may be small does not mean that you shouldn’t secure your data like a large company. Larger companies generally implement multi-layer security systems; follow their lead.
Not every employee should have access to all of your files. Limit your company’s access according to the department they work in, with a trusted administrator.

Create Very Strong Passwords:

Almost every small business uses computer systems in order to conduct daily operations. Therefore, each individual employee must have their own employee ID and password allowing each employee their own access to the computer system.
Never use passwords such as 12345678 or 11111111 or 32132132. The unique, long passwords must be used.
Consider password tools that will create new and unique passwords as needed. Should you find that any of those passwords are hacked, you won’t have to change every password on your system.
When an employee exits the company under any circumstances, the administrator must immediately turn off all access to any of the employee’s accounts.

Small business identity theft is becoming increasingly serious. You must secure your systems, keep them updated and monitored. Do not procrastinate, doing so will leave your business more vulnerable by the day. Implement the best practices, and you can put your mind at ease. Failure to do so could potentially destroy what would otherwise be a successful small business. Remain vigilant and enjoy continued success.

For more statistics on identity theft and cyber crime in 2019, read this blog from broadbandsearch.net.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Paperwork Can Make Your Life Easier – Really!

No, seriously – paperwork can make your life easier if it is the right kind. If it is the wrong kind it can make your life much more difficult (living hell comes to mind).

Did you know there is a right kind and a wrong kind? Many owners do. Many do not.

A lot of us have to deal with the wrong kind, which gives us a negative attitude about it. We think it is the only type there is, and want no part of it. But, there are other options.

Too many business owners are all or nothing. They either have too many or too few policies and procedures – neither works. The right kind of paperwork is simple to follow, easy to understand and worthwhile to do. It is part of a system that defines, documents and gives everybody the information he or she needs to run a successful company effectively.

The goal is to have just enough policies and procedures to make sure everybody is efficiently rowing in the same direction. But, not so much they end up in a swirling whirlpool frantically rowing and going nowhere. Or not so little they are scattered all over the river with no one knowing where they are going or how to get there.

So, how do you create the right kind of paperwork? First, ask yourself these questions:

What 3 goals do you have for the business? How are you defining, tracking and measuring them? When and how will you know if you have succeeded or failed? Why and how are your employees and key people contributing to or sabotaging them?
How visible, understandable and transparent are your processes? How did they come about, does anyone follow them and can you and others explain why he or she exists? Are they doing what you intended? If not, why not? If so, can you make them simpler?
What data and facts do you have (not guesses)? How often do you look at them? Can you and others use them as a management tool? Do they show how to correct problems and decrease risk (e., quality, compliance, operations, rework, customer concerns)? If not, why not? Can you make the data easier to understand and use?
Did you know the number one complaint employees have is that management does not enforce workplace rules? All employees want structure and rules – yes, even the bad ones. What is your disciplinary system and is it in writing? Is it progressive? Do you enforce it? Why not? Why should good, responsible people work for you? What plan do you have to retain them?

If you want your business to be successful, and have an easier life, the objective is not “avoid paperwork” – that is shortsighted and counterproductive. The goal is to have only the right kinds, the ones who add value for you, customers and employees.

It takes commitment, time and work, to get started; worthwhile things usually do. Make no mistake, if it was effortless more people would be doing it. But, they are not, and more importantly, your competition is not.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Consider a SMART Goal to Grow Your Business

Small business owners often fail to consider themselves large enough to set specific plans of action regarding the growth of their businesses. You, as a small business owner are larger than life in the big economic picture. So play it SMART! Reach your objective!

According to the U.S. Census Bureau, the results of the last census taken in 2014, 5.83 million employer firm businesses operated in the United States. Small businesses employ approximately 53% of those in the private sector workforce. Larger corporations with more than 500 employees employ only about 38% of the workforce in the private sector. In summation, today about 62% of the small U.S. businesses employ less than five employees, and these small business numbers continue to grow.

With this in mind, it is critical that small businesses become savvier in using both creative and proven methods to enhance their customer base and profitability. To accomplish growth, small businesses must consider a laser focus on how to include their employee base, (no matter how small) in the growth of their companies.

We would suggest using a method that is tried and true often used by those who select business administration as a part of their career choice early in their educational processes. This strategy is called SMART. By using this written strategy, you and your employees will have the ability to map their individual intentions, therefore collectively setting goals within the business that will become far more likely to create growth and a higher level of financial sustainability. Each owner and employee must be willing to take personal responsibility for their goals within your organization.

Create an SMART Goal document using the following information:

Specific – Defining the specifics of the project will address the what, the why and the how of the individual’s intent to improve the business. Each person participating should clearly define their intention or what their plan of action will be. The aim should be written as a simple statement.

Measurable – To achieve a semblance of tangible evidence that the stated goals are met, the goals must be measurable. Of course, the entire statement is about the measurement of the indicated project; however, usually, a project plan will contain, smaller or short-term measurable metrics. The stated metric essential would likely be whether the selected and agreed upon system could genuinely be achievable and by a specific date or by the end of a specific imposed timeline.

Achievability – Are your goals achievable? To begin, the individual employee planning their portion of the growth processes must have the capability to accomplish the goal with the proper skills, knowledge, and ability to execute their respective aspect of the desired outcome. Don’t overwhelm yourself but you should expand and challenge yourself. Define your goals but be confident that they are achievable.

Results Oriented- The results of your goal should focus not on activities, but on outcomes. This particular part of this process will enable owner(s), managers and employees to acquire a more competent evaluation of overall performance. This evaluation will assist in the better development of careers and not just the benefits and activities that individuals will bring to the table to bring the goal(s) into reality.

Time Orientation – Provide a time, due date or deadline. This aspect may reflect the end point of the project. In other cases, it may be check-points that will assist all participants in assessing just how well the project is progressing before its completion and therefore allowing for any needed modifications to ensure that in the end, your results will meet your expectations. Regardless, it is a good idea to implement time restrictions to create a sense of urgency; in doing so, the participants will be more likely to complete their response to the project on time.

S.M.A.R.T. goals are highly beneficial for a myriad of reasons. They encourage specified purposes that are better monitored, collectively throughout the process. A well-planned goal is one that is detailed and should, therefore, allow for a better understanding among participants of the importance of the needed activities to accomplish the aims of the business. Setting these goals, step-by-step will ensure a more natural way to track several aspects of progress to include how profitability is affected. Most importantly, when a project is broken down into detailed specifics, it is much easier to visualize and is much more likely to produce a better-projected outcome.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Small Business Accountability

Small businesses have or should have financial statements that provide a health measurement of the business and whether they are profitable or not. Your business financial can include data on business income, balance sheets, cash flow, and most importantly how cash is controlled. Do you have the right management team, tools, and culture in place to drive your business financials in the right direction?

It is crucial that you are constantly analyzing your business financials and the controls in place to drive the financials in the right direction. Most small businesses have bookkeepers or even accountants and/or tax advisers who manage the business financial numbers. They often make sure that the financial numbers are accurate and report error-free using accounting software such as QuickBooks. It is crucial that you analyze your business financials even if you have someone else who does the financial work such as your bookkeeper or accountant. You will be able to verify that all information is correct to the best of your knowledge and make any necessary business decisions to steer your business in the correct direction.

Consistently analyzing your financial data will encourage accountability with your managers and employees who have a direct part of the bottom line. Reviewing your financial statements, yourself gives you the chance to validate that no there is no embezzlement occurring in your business. Depending on whether you contract with an outside accountant or you have someone in your business crunch the financial numbers, analyzing your financial statements after your accountant or inside financial person may also ensure accountability.

When growing your business or just running your business financial statements themselves will not make the ultimate business decisions necessary. Between yourself, as a business owner and with your management team you can discern what actions and management decisions to make based on the financial data. As an example, if you are looking through your financial data and it points to an overlap of departments that is cutting into your bottom line, then you may want to consider laying off or moving people around and consolidating departments. You may also want to go to the extent of doing a resource load to ensure you have the correct amount of people depending on your current business needs.

Besides just analyzing your financial data, what drives the data is the most important part of your business decisions that drive the bottom line. Success in any business happens from successful employees, and with that, you must have strong managers. A strong manager is one of the most critical mechanisms to successful employees. As in most if not all businesses, employees leave managers and not companies.

It is crucial that you focus directly on managers as a lever of engagement to hire, retain, and encourage the most important assets of your business, the employees, To do this, you must provide the necessary tools for your managers to be successful rather than expecting them to be successful. An example of this is strong manager performance in acknowledging good employee performance increases better productivity and quality of work. This will lead to improved customer service and with better customer service comes more loyal customers.

You must have the correct tools in place to empower the managers to engage with their team on a daily basis which will allow them to provide the necessary feedback where needed. Leaders, using recognition, provide a new perspective with the correct data. Managers are enabled to make the right business decisions. Ensuring that you have the right tools in place that connect to your bottom lines will provide the system you need to manage the financial status of your business in the right direction.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

7 Calculations for Profiting in the Service Industry

On numerous occasions, I have asked plumbing, coating and finishing, HVAC, or glass company owners and executives, “What is it you sell?” I get a variety of answers like excellent service, best prices, superior products, experienced techs, or quality installation. “No!”, I jump up and say. “You sell labor! Your clients come to you for your expertise, so in return, you sell them labor hours to perform the needed service they require.”

Now I would be foolish to tell you these other items mentioned aren’t important like excellent service and superior products, but you could excel in these areas, still lose money, and eventually become insolvent and unfortunately cease to exist. The actual challenge in business is how you manage your costs, increasing the probability of profitability and ultimate success. Labor costs will be our focus.
Consistently “sculpting” profit ultimately determines success in everything you do. You do NOT do this by applying antiquated or “other company’s” metrics into YOUR pricing formula. Nor can you determine your price by “what the market will bear.” You accomplish success by determining your unique company metrics and utilizing break-even principles to decide what you will charge your clients and be profitable.

Using this process is not as difficult as it seems if you make the following seven simple calculations to create a valid global bidding format for your company:

From your last full year’s Profit and Loss statement, extract the following and list on a sheet of paper (or Excel spreadsheet):

Total direct labor cost – direct labor consists of anyone that works for you and you make money off by billing hourly. Bookkeepers, warehouse personnel and non-billing managers do not qualify. You may need to get this from your payroll report if direct labor is not listed separately on the P & L by your accountant. Total the amount. (Deduct any vacation and holiday pay calculated as per NOTE below)Additionally, it is inconceivable to expect 100% of your billable hours to be billed thus negatively affecting your labor productivity. We have vehicle cleaning, inventory loading, answering client questions, safety meetings, and a whole host of other activities that take us away from our primary concern—billing hours. Therefore, it is prudent to adjust our available billable hours and absorb the unproductive hourly costs into the hours billed. The formula is as follows:
For this example, we are assuming lost productivity at 15%:
*This is known as your labor productivity rate and 85% is an acceptable approximation to be utilized if you do not know the exact number. However, if you know your labor productivity rate, use that number instead to reflect your real situation.
Total direct labor taxes and expenses – FICA, FUTA, SUTA, Workers Comp, Medicare, uniforms, vacation pay, holiday pay, healthcare, and any other benefit you may offer. These are examples of “Labor Burden.” Total the amount and divide by the total direct labor amount. It will come out as a decimal and look something like this: .333 or 33.3%. Now you have your labor burden rate. Circle this in red. We will incorporate in the following segment.(NOTE: Any holiday and vacation pay calculations must be deducted from the Total direct labor calculations above to reflect specific, billable labor hours available.)
Total direct materials costs – or commonly referred to as COGS. These are materials or products used in the service or installation process.
Other identifiable direct costs – items that you identify and place into a bid calculation such as permits, hotels and per diem costs, subcontractors, and equipment rental. Total this amount.
Other direct costs that are not identifiable – items you cannot calculate per job and add to the bid but still used and must be accounted for and incorporated into the costing process. Examples of these costs are miscellaneous material costs (nails, welding solder, etc.), credit card fees, etc. Total the amount and divide by total direct burdened labor amount (direct labor plus direct labor burden). It will come out as a decimal and look something like this again: .172 or 17.2%. Circle this in black. We will apply this Other Direct Cost Factor to every job. In other words, for every dollar we spend on labor, we also devote 17.2c (or 17.2%) on Other direct costs that are not identifiable. We will apply this concept in the following segment.
Tally up all of your Direct Costs (items 1 through 5) – this is important for future overhead and break-even calculations.
Tally up Overhead Costs – these are all the remaining costs (or commonly referred to as fixed costs) from the Profit and Loss statement. Total the amount. To make sure you have calculated everything correctly add the Overhead Costs to Total Direct Costs. Take this sum and subtract it from your revenue from the P & L and you should have the same operating profit as the P & L. If not then one of your calculations is incorrect. It will probably be the Overhead Costs that is incorrect. Recheck your direct cost calculations. If correct then adjust your total Overhead Costs. Once completed, divide your Overhead Costs by Total Direct Costs. The result will come out as a decimal or percentage .283 or 28.3%. Circle in blue. This Overhead Absorption Factor will be used later in the costing process.

We are ready to utilize the metrics just created in constructing a break-even format for your bidding. Here’s the scenario. You just obtained information on client requirements for a bid, conducted a take-off and came back with the following information:

It is estimated to take 385 labor hours to complete the project.

We estimate a total of $18,883.79 in materials will be required to meet the client’s needs. ($15,000 in primary purchases and $3,883.79 in support and construction materials)

Permits for this project will cost $488.75

We must rent a piece of equipment for one week during the initial phase costing $1,139.56.

We must bring in a subcontractor for critical quality control reasons before the final inspection for two days at the cost of $489.68.

How do we proceed and how much should you make? It is always good to have a profit percentage as a goal each year to direct your activities. This is key to ensuring you end up with the desired rate at the end of each month/quarter/year. We have selected, for this exercise, 12% as the goal.

This whole model is based upon meeting the projections primarily for labor and materials. Any overruns in time from mismanagement or replacement of materials from rework or miscalculations come out of “pre-planned” or sculpted profits. This holds true for any other costs running over budget and necessitates the importance of monitoring and controlling your direct costs.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Inventory: Potential Profit Drain

Many businesses have a profit drain in the guise of inventory sitting on their walls, whether it be for resale, for assembly or for use in performing company services. Dependent on the size of your enterprise, how this is handled can positively or adversely affect company profits. Too much of the wrong inventory and we are tying up much-needed cash for business operations; too little inventory and we may miss much-needed sales. This dilemma is always a hard decision for the business owner, should we invest to grow sales or operate in a lean manner with a just-in-time philosophy? The companies who have conquered this aspect of logistics the best, like Walmart and Amazon are the success stories of the 21st Century.

Many types of inventory programs and devices that can be used to track inventory, however, they all cost money and require someone to monitor, order and make adjustments. Do we need just one person in charge? Can we afford a warehouse manager? Do we need someone to deliver parts and materials to job sites? These are all factors one needs to consider when looking at the effect of inventory on your bottom line.

The focus of this discussion is a small, but important, aspect of inventory; that is, the items carried on a repair or service truck.

PRELIMINARY CONSIDERATIONS

How much time (money) will it cost to put in place?
How much will we need to invest to have an adequate supply?
Will buying in quantities save us money?
Will it save on unnecessary trips to a supplier or warehouse?
Will it prevent time lost in traffic jams?
How much will it prevent unnecessary stops at the convenience store?
How much do we need of any particular item?
How quickly is it attainable if it needs to be ordered?
How reliable are the suppliers?
Can we get items delivered to our door?
Will we need some backup storage?
Can we prevent employees from cannibalizing one truck to fill another?
Will we be able to maintain an accurate inventory?
Will it save us money in the long run?
What can we expect in shrinkage?
Will it make us more productive?

SPECIFIC ISSUES TO RESOLVE

How many trucks do we have?
1. Are they of the same configuration?
  1. Can we store the same items in the same place in each truck?
What needs to be in the front of the truck for the driver?
1. Time sheets
2. A “calling card.”
3. Place for invoices for items that are purchased.
4. Forms
5. Trash bags
  1. Keeping the truck clean.
How many trucks are focused on the same function?
1. Repair work
2. Installation
3. Service
Have we determined what is needed on each truck for maximum performance?
1. Is there a base requirement of tools or supplies for each truck?
  1. Tools required
  2. Materials
  3. Supplies
2. What would be a specialty item?
  1. Most common emergency repair?
    1. Tools for that?
Could each truck be a mini-warehouse?
How will it be organized?
1. Storage areas in the truck
  1. Shelves
  2. Boxes
  3. Bins
How will we track use and consumption?
1. Manually
  1. Form to fill out
  2. Submit to whom?
  3. Periodic counting?
  4. Daily counting?
Who determines the quantities to order?
1. What is the turn on the products?
  1. How often are they consumed in a week?
2. Do Drivers pick-up at suppliers?
3. Who re-enters into inventory?
Who tracks the prices?
1. Savings here will lower our Break Even point.
  1. Can we buy wholesale?
  2. Can we negotiate a discount?
  3. Internet Pricing
2. Local Supply house
  1. Quantity discount?
  2. Contractor discount?
Have we set a max-min number to follow?
1. The 80% rule.
  1. Who adjusts the quantities?
  2. When do we adjust quantities?
  3. Adjust for seasonality?

This exercise is meant to address questions that might be asked before or even after setting up inventory in a vehicle. If we already have inventory in a vehicle, is it the right inventory? Is it sitting there and not getting used because it is unknown to the other drivers? Outdated? Obsolete?

Once we have made a decision to inventory commonly used items we need to make sure it is saving us money. Fewer trips to the supply houses, less time in traffic, more billable time by employees and are we getting better pricing? We must remember why we started an inventory in the first place. SAVE MONEY and INCREASE BILLABLE TIME and INCREASE PRODUCTIVITY.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Budgeting: Under-appreciated and Under-utilized

One of the last things that most small business owners consider is doing a Budget. A large number of owners do not understand the value obtained from a having a budget. Often, when budgets are in place, they will not take the time to review them regularly or use them as a tool to guide them in the management of the Company.

Many owners look at their plan for the year as “it is what it is” regarding the sales and profits that are to be obtained for the year. They will settle for what the year brings them. We know this is flawed thinking, particularly if increased sales and profits are necessary or needed to meet your goals. A budget when used appropriately will help to guide the owner to achieve his goals.
Some of the owner’s reluctance may be rooted in the fact that his Chart of Accounts is inadequate and we have failed to discuss this or to emphasize this factor. In other words, if his Revenue and Cost of Goods are one-line items in the P & L and he does not show any revenue streams and does not track labor or materials separately; the potential value is hidden from him at this time. He cannot see that tracking these items separately and in a forward-looking budget will produce a benefit.

An additional problem may be that even if a budget is developed, there may have been not enough time spent to train people properly on the value of a budget and what it can do for strategic planning.

REASONS FOR A BUDGET

Statement of goals and methods of reaching them.
Defines priorities and boundaries for spending.
Sets goals for Sales and Marketing
Ensure that a proper amount of money is allocated for salaries, expenses, and profits.
Gives the ability to monitor under-performing areas and address them before they create major problems.
Ability to monitor Cost of Goods concerning Revenue and Fixed Expenses and light of past expenditures and the current Revenue.
Assists in the decision-making process of when to make capital expenditures.
Assist in the evaluation of the realities of the goals that have been established.

PRELIMINARY CONSIDERATIONS

As noted before, the first step must be a review of the Chart of Accounts :

Do we have several Revenue streams that should be tracked separately? If so, new accounts must be created in the COA to enable them to be tracked individually.
Are the Cost of Goods separated into Labor, Materials, Equipment, Supplies, Fuel, etc? If not, new accounts must be created here as well. (Remember these are all items “directly billable to the jobs”)
Are there items in fixed expenses that need to be moved to Cost of Goods? Usually, some of the items are COG and need to be allocated as such.
1. It would be ideal to get at least three years of previous monthly sales and determine the average percentage of sales for each month.
2. Once revenue goals have been determined we can then break this down into the seasonality revenue by each month.Is there seasonality in the business? Does one month or one quarter contribute a larger portion of the Revenue?

NEXT PHASE

Make a realistic estimation of the amount of profit desired or necessary.
1. What does the business require?
  1. What would be a reasonable return on the investment?
  2. What do the stakeholders feel needs to be a reasonable return for their efforts.
2. Fixed Expenses
  1. Fixed expenses usually remain the same regardless of the revenue. These are the expenses incurred whether we open the doors or not: items like rent, electricity, heat, insurance, licenses, interest, office salaries and office supplies.
  2. A cost of living increase, at the very least is required but in some cases (electricity, insurance, health insurance) a larger increase maybe warranted.
  3. Take into consideration any predetermined (rent, health insurance) increases for the upcoming year and any increases in the advertising or marketing budget above the previous level.
3. Determining Revenue
  1. In establishing a budget, some will guess at the expected revenue or set the desired number that might not be achievable. However, we may be a bit more methodical if we start with our fixed expenses total and add our desired or required profit to that number.
  2. If we assume that we have increased our fixed expenses as well as our desired profit; and we assume that the Gross Profit percentage will remain about the same we can calculate the desired revenue to achieve the profit level we want.
    1. Having previously determined the new amount of fixed expenses we add to it the amount of profit also desired.
    2. If our historical Gross Profit is 28% we can calculate the amount of revenue needed to support the fixed expenses and profit level
    3. Take the combined total of fixed expenses and desired profit and divide by the gross profit percentage to arrive at the revenue required.
    4. EX. $180,000 fixed
    5. $100,000 desired profit
    6. $280,000 Total divided by the GP%. Thus $280,000/.28 =$1,000,000 or the required revenue goal for the year.
    Variable Expenses
  3. These costs will vary with the amount of revenue that is generated and they are the direct costs of doing business. Crew Labor, materials for the job, truck repairs and maintenance, truck fuel, workman’s compensation for the crew labor and supplies
  4. If previous year’s numbers are available, we can use the percentage of revenue that each expense formed as part of the overall revenue. Thus, if labor wages were 50% of revenue that would probably be a valid number for that segment of the COG in the new budget. This process should be repeated for each account in the Cost of Goods.
    1. Take into account the necessity for an increase or decrease in the number of laborers based on the revenue goal.
    2. How much of an increase do we get due to the revenue increase?
    3. Generally from year to year the percentages will be within a small range, unless a new revenue stream is developed or windfall of new work is landed.
  5. Review and Compare
    1. Look at the totals for the fixed and variable expenses and the desired profit.
      1. Then the next question asked should be, ” is that amount of revenue attainable?”
      2. If not, what are the realistic reductions in the fixed expenses or is the desired profit too high?
      3. Make Adjustments.

SUMMARY

The budget should paint a picture of the future financials for the company.
Setting your profit goals on paper (or electronically) will ensure that you will be more likely to attain those goals and they will not evaporate.
Trying to achieve a goal without a budget will almost ensure that your goals will not be met.
Budget to ensure an adequate return on your investment.
Monitor the budget monthly to see that the revenue and expenses are in line so that your profit goals will be met.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

2 Forms of Analysis to Increase Company Health

As with any business, it’s the duty of a business owner or assigned business manager to competently and adequately guide their company through to the initially intended achievements of the company goals and benchmarks from day one. These practices must continue throughout the life of the business. After all, any business requires constant monetary and sweat equity that no one wants to see squandered.

To avoid adverse outcomes, it not only requires the active creation of a company mission and strategic plan of action for the business but will also require a non-stop, vigilant monitoring of the operational performance of your business on all levels. Any consulting professional would strongly recommend that whatever successful strategies that the company creates continue to be frequently performed. Some of the most exceptional consultants associated with some of the most respected business consulting firms suggest that small businesses consider educating themselves with the use of the SWOT/TOWS Matrix.

A Brief History

The SWOT analysis was created in the 1960s by management consultant Albert Humphrey while he was working with the Stanford Research Institute. During that period; many Fortune 500 companies had struggled with their strategic planning efforts and were in need of new, more innovative strategies that would produce planning that would be reasonably executable and effective, long-term. For decades, since the SWOT Analysis was devised and implemented, it’s been regularly and successfully used globally by small to midsize businesses and large corporations alike. It assists in the development of their respective strategies and solutions so that they may continue to experience positive results about their profitability and brand enhancement (among other aspects of the business).

Over time Heinz Weihrich; a professor and management consultant of Global Management and Behavioral Science with The University of San Francisco, developed the TOWS Matrix.
These strategies are not only used by Universities globally to monitor their own business performance, but they teach these strategies early in the educational process to those students who are positioning themselves in all aspects of business management and administration. Today, technology allows small business owners the opportunity to educate themselves in the implementation of these analyses. As a point of fact, there are many useful SWOT/TOWS forms and tools made available to anyone who may like to conduct this research on their businesses.
These same analyses are implemented by company “thought leaders” in not only keeping businesses on a positive path, but they often use the same analyses to help employees come to know themselves within the business environment and how important their thoughts and ideas are to the business no matter the size of the company.
The SWOT and TOWS analyses will create a space for productive “brainstorming”. Once the issues begin to reveal themselves throughout the process, solutions become more accessible to identify. The analyses are a great starting point in maintaining continued growth on all levels. If these steps are taken from the inception of the business, it’s much easier to remain abreast of any possible threats that your company may face. However, these analyses may be performed at any time in the life of the business to improve the business’s strategies.
With proper observation and implementation of correctional strategies, external threats may quickly reveal executable solutions that could stave off and often eliminate the possible damaging results that could be catastrophic to your small business if they are ignored or left to work themselves out. Instead, these analyses are capable of helping to create much-desired success.

What Exactly Does SWOT Stand For?
This acronym represents:

Strengths
Weaknesses
Opportunities
Threats

What is TOWS?

Threats
Opportunities
Weaknesses
Strengths

Of course, the first thing you’ll notice is that it’s the same acronym, but it’s backward. Why should you use both models? Very basically, by combining the matrices, your company will experience a better opportunity to identify all aspects both internally and externally, not the order of benefits of only one model or the other. SWOT addresses internal information and TOWS addresses more of the external possibilities. Both valuable and needed.

What are the Benefits of Conducting the SWOT/STOWS Analyses for Small Business?

You will discover the internal strengths and external opportunities available to your company and how strengths may be utilized to benefit from the realization of external opportunities.
You will benefit from the discovery of internal strengths and external threats and how your business may benefit from their own strengths so that your company may avoid any potential external threats that have come to light.
You will discover how to use your opportunities and overcome any internal weaknesses.
You will identify your abilities to minimize any weaknesses and will, therefore, acquire the capacity to avoid potential threats.
None of this will be remotely effective, however, if the issues uncovered during your discovery phases lie dormant as you continue to run your company as you have been running it. The changes will not occur on their own. Over time external progression will ultimately introduce threats that you won’t see coming and those threats will compound with time.

Don’t ignore your discoveries once you’ve answered your questions about how to improve your business. Your weaknesses and threats will not go away on their own, however; your opportunities just may. Alternatively, your company, as you progress, could well become a threat to other companies. You will want to maintain focus and anticipate what possible strategies they may devise to combat the threats that you could pose and prepare to remain a step ahead.

In an extremely brief summation; after performing the SWOT/TOWS analysis, you’ll be left with a list of awareness’s, self-imposed questions and potential solutions to threats both internally and externally. It will be then that you will have the ability to either change the trajectory of specific aspects of your company or the company as a whole if needed. Or you will have the ability to identify opportunities and improve on whatever is already successful.
Should you find that you are overwhelmed, and in need guidance, you should consider working with a reputable business consultant or business consulting firm for assistance.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

It Is Time to Get Control of Your Money

It is baffling to experts. Why won’t business owners learn how to read, understand and manage their financials? Why don’t they want to control their money? Why can’t they realize that the better they control their money, the better they control their business?
The answer is simple – owners are human beings first and business-people second.

All human beings are illogical about a lot of things (i.e., children, dreams, spouses/relationships, jobs, politics, hobbies, goals, expectations for other people). Our emotions affect our decision-making skills all day, every day. Everyone has exhibited bad behaviors, made poor choices and acted on unsound judgments based only on how they were feeling at the time.

We are particularly irrational about money and finances. If you cannot immediately come up with five names of people who have made poor financial decisions, then you have not been paying attention. You, also, have not been paying attention if your name is not on the list. It is a given that we can be our own worst enemy when it comes to making good financial choices.

But, that is a destructive and frustrating way to run a company. There are better ways. We have all asked ourselves, “What was I thinking?” and had the answer be, “I wasn’t.”. However, that does not have to be your answer; you can change it. Knowledge is power, and it can help you get control of your money, your life, and your business.
The positive characteristics – independence, self-reliance, stubbornness – which made you a success also have a negative side. Most business owners do not want to admit when they are wrong about or do not know something. They also do not want to ask for help. But, believing you know everything there is to know about running a company is unreasonable and irrational.

This is one of the reasons owners make bad decisions in uncertain, uncomfortable or unknown situations. When they have no or poor financial information the more likely they are to make mistakes in productivity, quality, sales, estimating/bidding, inventory, personnel, salaries, etc.

When we are faced with problems our mind usually does not pick the rational solution, it picks the easiest one, the one that feels the best. But, feelings are not facts and giving feeling based answers is a very poor management strategy. They are often wrong.

Overwhelmingly, when an owner learns how to read and manage via his financials, his response is, “I don’t know why I didn’t do this sooner. It makes everything so much easier. I have all the information I need and know exactly what is going on in my company.” Your financials will immediately tell you the health of your company. When you understand and have control of your financials, you have control of your business.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Overhead vs. Cost of Goods

Cost of Goods

The importance of knowing what expenses constitute Cost of Goods and what expenses constitute Overhead are critical to establishing a meaningful Chart of Accounts. A meaningful Chart of Accounts gives you an advantage in calculating your breakeven pricing; which in turn directly affects profitability.

A good general rule of thumb to distinguish between Cost of Goods (Direct Costs) and Overhead (operating or fixed costs) is whether they are a cost directly attributable to producing revenue and are they items that will likely increase as we obtain more work? Thirdly, can they be charged to the job? Usually items like direct labor, benefits for the direct labor, and materials fit these criteria. If an item does not meet these criteria then it, more than likely, needs to be treated as Overhead.

As noted above; that all items to be considered as Direct Costs (Cost of Goods) must be billable to the job and included in the estimate. If we leave things out like supervision, costs associated with bidding, consumables or if you cannot or won’t bill them; then it may fall into the “semi-direct” category that should be a Direct Cost but now is treated as a fixed or Overhead Cost so that we can recover this expense.

If, for instance, you have an owner/manager doing some office work, some field work, in addition to some direct job supervision, you must decide on how you are going to treat this expense. Should we divide it between Overhead and Cost of Goods? If so, how much do we charge each job for the supervision? Remember that items like supplies that are consumable may be charged to the job as a percentage of the revenue. For example, if over the years we have found consumables to constitute 1% of the overall Company job expenses; then this percentage could be added onto our bid in order to recover those costs.

MOST IMPORTANTLY – YOU MUST STAY CONSISTENT!! Treat it the same way each time. Know where the costs are. Are they estimated in the Direct Cost, or are they captured with the Overhead Recovery Factor and you structure your bid accordingly.

Overhead
Overhead is operational expense not directly billable to a job. So how do we “charge” for the Overhead? Failing to recover the full costs of your Overhead in your estimating or pricing, will more than likely make your business, product or job unprofitable, when the final numbers are applied.

So, what constitutes Overhead? It is often referred to as “Fixed Costs, ” i.e., expenses that are not or cannot be included in the Cost of Goods because they do not meet the two criteria we have previously outlined. Another way to think about Overhead is to regard it as all operational costs that cannot or are not able to be billed to a job.

Generally, they do not vary from month to month (rent) or with the amount of goods or services or revenue we produce. Granted utility bills will vary slightly and phone bills will also, but as a rule they stay within a short range of expenses. They are also expenses that are incurred even if we don’t make one sale or never open the door. They are the “support systems” of the sales, manufacturing, or services that we provide. For example, rent, utilities, administrative salaries, liability insurance are all good examples of Overhead. Generally, they do not increase as we produce more work or provide more services. They are the non-direct” costs associated with running the business. However, we need to recover the cost of these items over the course of the year for you to stay in business. Failure to do so will put you out of business very quickly.

A separate account in Overhead should be set up for any office vehicles; (owner, estimator). This then enables us to charge each job or build into the estimate the costs for operating the trucks assigned to the crews. One such gray area might be job Superintendents. Are we including something in each job to cover their salary and benefits? If not we may need to treat it as a semi-direct and cost and recovery this expense as part of Overhead.

SUMMARY
Determining breakeven is essential to the success and profitability of a Company. However, to achieve this goal you must determine the appropriate classification for all operational expenses whether they be Cost of Goods or Overhead. These items must be accurately tracked in your Chart of Accounts with proper input into each account on a consistent basis.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Business Analytics – Do You Need it?

Business analytics – if you are like most small business owners you have heard of it. And, if you are like most owners you are not exactly sure what it is or if you need it. Let us break it down and see if it is right for you.

What it is
Business analytics refers to the methods you use to measure the performance of something – projects, machines, employees, crews, products, shifts, processes, customers, etc. These measurements give you numbers, real data not guesses. You then use the numbers to make fact based management decisions.

How it works
Owners often know what they want; they just do not know how to make it happen. Their goals are good, but too vague. Therefore, they do not know where to start. Business analytics shows them how to turn open-ended goals into achievable tasks.

Think simple, simpler and simplest. In a small company the analytics should never be complicated. They are only a tool to do the job better, and should not be a job itself. You can start small – with the most obvious problems – and still get good results. Here is an example of how it works.

Your goal is to make more money. Problems have to be identified before they can be fixed. So, you develop a method to collect information (data) about productivity and quality, the areas with the biggest problem costs. When you get the data you use it to identify the trouble (Bob’s crew is 25% less productive and has 30% more rework than other crews) and look for solutions (Bob needs some training, disciplinary action and/or fired).

Why you need it
Most small businesses owners are not using analytics to manage. Those who do have an unbeatable competitive edge. They are: profitable with higher margins, better able to allocate resources and capital, customer focused, more efficient, controlling risk, proactive and focused on success.

Good employees like fact based management, bad ones do not. Responsible ones like looking at and comparing their numbers. They take pride in having 5% less scrap than the guy at the next machine. Incentives and discipline are much more effective and successful when based on data, not management “playing favorites”.

Other benefits include: salary planning, greater understanding and control over financials (cash flow, balance sheets, profit and loss), on-time and under budget project management, and sales and marketing effectiveness.

People lie, memories can be faulty and guesses are not facts. Business analytics give you a way to stay focused on your goals, and a way to reach them. They make things more efficient and less stressful for you, your employees and customers. Numbers, by themselves, are worthless if they are not used to improve understanding, empower people and coordinate resources with decisions. They should be used for a purpose – to make you more successful.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Employee Productivity Measurement – The Why and How

For most businesses, the costs associated with having employees are significant; in some cases, employee cost is the single biggest cost area for the company. It should be no big surprise, therefore, that employee costs must be controlled in order to optimize profitability. So how can the costs associated with having employees be measured, monitored, and controlled. There is an old, but very true, saying in business circles that states “if you do not measure it, you cannot control it“. If you do not measure employee productivity, you cannot control it; so how do you measure employee productivity?

First and foremost, the measurement should be a ratio. The ratio should be a measure of “value” produced divided by either a direct or indirect measure of the cost to the company for producing that amount of “value”. Using a ratio gives a relatively reliable metric that can be used to compare performance during busy business periods and slack business periods and ideally should remain constant (or improve) regardless of volume. Examples of potential productivity measurement ratios include:

Number of widgets produced per hour for a production worker.
Dollars of sales revenue booked per hour worked for an inside customer service representative.
Dollars of sales revenue invoiced per hour for service technician.
When monitoring employee productivity and making managerial decisions based on the information, it is advisable to:
Look at a sufficiently long period of time; this reduces the chances of short-term aberrant data distorting the facts. Use a moving average of 4 to 12 weeks (use the shorter time frame for very stable data with minimal variability and the longer time frame when outside influences can cause greater week-to-week variability).
Look for trends. Graphing the data is a good way to visualize the trends. If the moving average is declining, it is a warning sign that prompt corrective action is needed; if the moving average is stable, this is good; if the moving average is improving, this is very good and the employee(s) should be commended for their efforts.
Monitor the data both for individuals and the average of the entire work group. This allows for comparison between the employee in question and the work group average.
Share the data openly and frequently. Use the date in all performance discussions with individual employees, both during informal discussions and during formal performance evaluation reviews. Additionally, routine (weekly) posting of the productivity graphs without managerial comment can be a positive factor in stimulating improvement; nobody wants to be at the bottom of the productivity “pack”.

Although the above comments refer specifically to employee productivity, the same logic can be applied to monitoring the effective utilization of other company expenditures. For example, you could measure and monitor:

Inventory carrying cost per dollar of sales revenue. This can provide information to assist management in deciding what to carry in inventory and what to consider as “special order” only.
Advertising expenditures per dollar of sales revenue (particularly when the sales revenue produced can be matched with the advertising vehicle that generated that sales opportunity). This can provide information to assist management in deciding which advertising expenditures are producing sufficient sales revenue and which expenditures should be discontinued.

Generally speaking, the best managed companies track their performance using a set of carefully selected Key Performance Indicators (KPI’s) which are often nothing more than ratios that measure the productivity for specific performance areas.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Understanding KPIs For Measuring Performance

What is a KPI?

A KPI (Key Performance Indicator) is a statistical measure of how well a business is progressing towards specific goals and objectives. A KPI could, for example, measure a company’s financial performance or how well it is meeting customer requirements. However, in order to be effective, KPIs must be effectively and accurately applied.

KPIs can be applied to many elements deemed critical to the success of the overall business and its individual operations such as employee performance, process throughput efficiency, training effectiveness. When key indicators of performance are measured, regularly reviewed and evaluated, business owners and managers can identify problem areas and address them in real time, allowing problems to be immediately identified and addressed before an operation is derailed.

KPIs can also be used to improve performance efficiency and provide business owners with metrics necessary to benchmark their processes, thereby giving them a competitive edge. Additionally, utilizing them in measuring performance can give business owners peace of mind that their organization is heading towards potential growth and success.

The 3 Rules of KPIs:

Should be quantifiable, unbiased, and realistic.
Should be agreed to by management.
Should be reflective of the factors deemed critical to the success of the operation or business.

Establishing quantifiable, unbiased, and realistic KPIs enables a keen measurement of performance such that feedback is value-added and accurately reflects intermediate and end results. A quantifiable KPI is one that can be measured empirically, without room for opinion or bias. If it cannot be measured then it cannot be adequately evaluated or managed. An unbiased KPI is one that is a true reflection of performance rather than a reflection of what you want the result to look like. In the application of KPIs, they should directly tie to the measure of aspects that are deemed critical to the success of the overall business and to its individual operations.

5 rules for the proper development and implementation of KPIs:

In order to be effective, the development and application of KPIs should be performed in a vacuum. Business owners and managers should brainstorm with key personnel and identify the Key Performance Indicators needed to assure success of the operation.
Establish at what when and where Key Performance Indicators should be used.
The mechanism for data collection and method of measurement evaluation should be defined and reliable.
The Key Performance Indicators must be effectively implemented and continuously measured.
Any adjustments that are made must be unbiased.

The 3 Benefits of using KPIs to measure performance:

Performance against goals and objective can be tracked and a real-time snapshot of performance can be obtained. For business owners, this can be beneficial in identifying and resolving issues before the operation hits a speed bump or roadblock.
KPIs are adaptable, and can be applied to any situation.
Organizational performance can be measured in an unbiased and concrete way.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Don’t be the Victim of Embezzlement

Being the victim of embezzlement is one of the most heart-wrenching events that a business owner can endure. Usually it involves a being betrayed by a highly valued and trusted employee. Not only is it a financially damaging experience, but an emotional one as well. Owners like to think that signing the paychecks keeps this from happening, but it doesn’t.

The bad news is that there are no surefire way to prevent this, but there are things that you can do to lower the chance of it happening. The good news is that accounting can put checks and balances in place to protect you and your company.

Make sure you have a budget.

If you know what is supposed to happen then you can more easily spot discrepancies and suspicious transactions. Money has to go somewhere, if you are aware of the flow of money, you can more easily figure out when it is missing and where it has gone.

Make sure that the bank and credit card accounts are reconciled every month.

If the cash is right then it has to show up in a second place on financials. If it doesn’t, then you should be able to quickly get to the bottom of it.

Make sure you understand your financials.

If your Profit and Loss Statement is matching up to your budget, what about your Balance Sheet? Are there accounts that you don’t understand on it? An unscrupulous employee could be use that account to steal money.

Watch your employees’ for warning signs. Warning signs include:

1. Talking about purchases that seem unaffordable. Purchase of cars, vacations, stuff for their kids are at the top of the list.
2. Visiting casinos can be a real red flag. Many embezzlers try to replace stolen money with winnings. (It doesn’t work.)
3. Never taking off work. Embezzlers don’t want to take the chance that someone will figure out what they are doing.
4. Embezzlers don’t look like crooks, they are people you trusted and hired. Many started out as a simple borrowing and then it gets out of hand.

The quicker that you can identify that someone is embezzling, the quicker you will be able to staunch the bleeding. If you have any concerns, perform a thorough examination of your books.If you have concerns that your accountant might be embezzling, hire a neutral third party to examine your books.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

Understanding Key Performance Indicators (KPIs)

Introduction to Performance Metrics

Distinguishing Productivity from Performance

Key Performance Indicators (KPIs): The Backbone of Strategic Planning

Challenges in KPI Design and Implementation

References

Implementing Best Reporting Practices In Manufacturing

What Is Supply Chain Risk?

What do you know about critical supplies and the path travelled to your door?

How Accounts Receivable Impact Cash Flow and Net Profits

Start By Reviewing The Balance Sheet and Accounts Receivables Aging Reports.

Establish a Collections Approach

Establish Solid Policies and Stick To Them

Look Within Your Own Business

Metrics to Use to Manage Business by the Numbers

From Behind the Desk: Excuses

Business Goal Examples For Any Small Business

Excel Features Less Known For Entrepreneurs

Time Study For Small Businesses

3 Steps to Effective Time Management

Which Fiscal Year Methodology is Right For You?

Identity Theft: How Vulnerable Is Your Business?

Paperwork Can Make Your Life Easier – Really!

Consider a SMART Goal to Grow Your Business

Small Business Accountability

7 Calculations for Profiting in the Service Industry

Inventory: Potential Profit Drain

Budgeting: Under-appreciated and Under-utilized

2 Forms of Analysis to Increase Company Health

It Is Time to Get Control of Your Money

Overhead vs. Cost of Goods

Business Analytics – Do You Need it?

Employee Productivity Measurement – The Why and How

Understanding KPIs For Measuring Performance

Don’t be the Victim of Embezzlement

Corporate Address

Memberships

Utility

Knowledge CenterReporting Systems Blogs

Introduction to Performance Metrics

Distinguishing Productivity from Performance

Key Performance Indicators (KPIs): The Backbone of Strategic Planning

Challenges in KPI Design and Implementation

References

What do you know about critical supplies and the path travelled to your door?

Start By Reviewing The Balance Sheet and Accounts Receivables Aging Reports.

Establish a Collections Approach

Establish Solid Policies and Stick To Them

Look Within Your Own Business

Footer

Corporate Address

Memberships

Knowledge Center
Reporting Systems Blogs