Management Tip - Measuring Success

How do you measure success? After years of trial, error, training and research I have a management tip for you: the four top level measurements that I recommend everyone have in place across their business or team. They should be built into everyone's goals and objectives each year. Every department head should have improvements to one of them as a goal each year. They are:

1. Production: what did the business get from this department? Generally this measurement should be in dollars.
2. Cost: what did it cost the business to have this department? Generally this measurement should be in dollars.
3. Success Rate: how often do they succeed at their top objectives? This can often be measured as a variance to expectations.
4. Cost of Failure: what does it cost when this team fails to achieve a top objective? This can be dollars, but you can also use other soft measurements like satisfaction levels.

Production and Cost metrics are the big dollars and cents measurements needed to determine what's happening to the money. Success Rate and Cost of Failure are softer measurements. Success Rate should be used primarily to highlight the great things that every department does each year, and look for opportunities for future improvement. Do not forget to use this metric to celebrate success. Cost of Failure is the money lost because we didn't do what we said we would do. This measurement helps us understand whether to stay the course, or try something new.

In general Production and Cost metrics don't change that much over time, but Success Rate and Cost of Failure metrics may change yearly to measure the specific top initiative(s) for that year.

Let's look at a very practical example of measuring a business as a whole. Let's say your business is organized into four departments each with a specific objective and starting place.

The Sales team's goal is to get a decision to purchase from the customer
The Orders team's goal is to sign a win-win contract with the customer
The Delivery team's goal is to collect the money by delivering our side of the contract
The Customer Service team's goal is to get repeat orders by creating satisfied users

Based on these expectations, the following is an example of some good top level metrics. The details will vary from company to company, but every company should measure the production of each team, the cost of each team, the success rate of each team on key initiatives, and the cost of failure of each team on key initiatives.

Sales Team:
Production = Total Sell Price
Cost = Department Costs
Success Rate = Number of New Qualified Leads
Cost of Failure = Unsuccessful Lead Generation Costs

Orders Team:
Production = Profit Margin on Invoiced Amount
Cost = Department Costs
Success Rate = Number of Qualified Leads who Bought
Cost of Failure = Time Spent on Orders that we Lost

Delivery Team:
Production = Profit Margin on Invoiced Amounts
Cost = Department Costs
Success Rate = On Time Deliveries
Cost of Failure = Cost of Rework, Late Shipments and Returns

Customer Service
Production = Value of Repeat Orders
Cost = Department Costs
Success Rate = Issue Resolution and Customer Contacts
Cost of Failure = Lost Revenue from Lost Customers

Summary

Metrics are an important part of all businesses. They are how we know whether we are doing well, or need to make some serious changes. There are a lot more metrics you can and should apply to your team, but it is important to always keep the big picture in mind. All too often team leaders go off measuring small things that don't matter and lose sight of the big picture. All of your small metrics must be there to gain a better understanding of these big metrics. Otherwise they are of very little use. Clearly define the goal of each team, what it starts with, and what it is supposed to produce. Then build measurements to understand the level of success at producing the desires result.

Daryl Cowie has shared management tips with 1000s of people in over 30 countries around the world. His mission is to help you and your company turn business opportunities into business realities. You can sign up for his free business management home study course at http://FreeManagementTips.com

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