Short Paper: Metrics and Analytics

Metrics and Analytics

Southern New Hampshire University

Metrics and Analytics

Metrics, or key performance indicators (KPIs), are used to measure performance and set standards for an organization’s goals. The appropriate metrics can be used to assess processes and help management determine where changes may be needed. In this paper I will discuss what I believe to be the most important metrics for operations managers and how each metric supports the overall financial performance of the organization. I will list the data that would be used to support these metrics and discuss how I would ensure that the data is of sufficient quality. I will also show how data analytics supports my metrics.

Chosen Metrics

Since there are hundreds of different KPIs, the appropriate KPIs should be based on each particular businesses goals so that the numbers have an impact on the actual development of the company. If I had to pick three, I would pick sales revenue, net profit margin, and customer loyalty and retention. Sales revenue shows if people are interested in buying our product, as well as how well the sales team is performing. Net profit margin will show if income for the business exceeds the costs of running the business. Customer loyalty and retention can show how many customers are staying with the company, how many new customers have been acquired, and of existing customers, how many are repeat buyers. If the company is not retaining customers, or the number of new customers is dwindling, then I would begin to question the reasons why we are losing customers. Is there a better product elsewhere for lower costs or is it a service issue? Customers who are happy with their service tend to stay loyal. Sales revenue and net profit margin speak to the profit aspect of the triple bottom line and customer loyalty speaks to the people aspect.

Financial Performance

Sales revenue will show if we are meeting our sales goals, not only month to month, but quarterly and then annually. If we are not meeting sales goals and this is being measured frequently then we can begin to look at why the goals are not being met and attempt to correct whatever is causing the decline. Net profit margin will show if income for the business exceeds the costs of running the business. If it does not exceed, then either sales need to increase and/or expenses need to decrease. Or perhaps the cost of the product also needs to increase. Customer loyalty and retention helps with financial performance when the customers are happy and the retention rate is high. If the retention rate is high then the likelihood that customers will repeatedly purchase from you is good and they will be more likely to tell their friends as well.

Data

To measure sales revenue, we would calculate all income from client purchases, minus any returns. In insurance, we look at new annualized premium, paid and issued, minus first year lapses. For net profit margin, we can total up the sales revenue minus the company’s expenses. For sales, we would want to look at the salary for the sales rep, the office staff, the cost of the space, utilities, paper and ink, etc. and subtract that from the total revenue on a periodic basis. We tend to look at these things on a quarterly, as well as on an annual basis. For customer retention, we can look at how many customers we had on December 31st of the previous year, how many new customers were added in the next year, and then how many total customers there are on December 31st of the current year. You also need to make sure that the data is of sufficient quality. You cannot assume that the data is of good quality. You need to take the time to understand the data and where it originated.

Data Analytics

Data analytics supports the metrics that I chose and it also supports two tiers of the triple bottom line, profit, and people. There is a need to craft different techniques to look at the data, whether it is financial for sales revenue or net profit margin, or customer focused, as in retention rates. Two different reports may give two different sets of sales numbers. You need to be able to analyze the data to determine why there is a variation between the two sources and which one is accurate for the problem you are looking to solve. We run into this all the time where numbers don’t match but it sometimes is as simple as the criteria varies slightly between reports and that can make a huge difference. Can the data be verified (Morgan, 2015)?

Conclusion

In conclusion, metrics are necessary to aid companies in measuring performance. Key Performance Indicators can help a company determine if there are changes over time, both positive and negative, and help highlight opportunities for improvement. KPIs can, and should, be customized for each particular company’s needs to ensure they are looking at the right data for their organization. Data cannot always be trusted so data should be analyzed. Data analytics can help companies discover useful information and supporting decision-making.

References

Morgan, L. (2015, October 13). 8 Ways To Ensure Data Quality. Retrieved from https://www.informationweek.com/big-data/big-data-analytics/8-ways-to-ensure-data-quality/d/d-id/1322239?image_number=9