Stages in Metrics based management

Kishore C.S. (March 2002)

Metrics based management is a very powerful concept. But this process is not very easy and simple to implement and gain immediate returns. It requires discipline and sincerity to adhere to this program. And also when starting to measure it is easy to become excited about the first results. But to really make good decisions and improvements based on the metrics and derive benefits is much more difficult and takes lot of time.

 

Following is my personal experience in a simple process improvement related to my personal life.

 

My objective was to Analyze my Expenses and be able to save money and still enjoy life by keeping expenses under control.

 

In absence of any data of what my personal expenses per month are compared to my income, I was not able to take decisions during the month about "Can I spend extra money this month?", "Do I have enough savings?" etc.

 

1. Data collection: This was the first step in my adventure. I started collecting data. I started recording my daily expenses. I accounted each and every dollar I spent for a few months. I recorded the expenses in a form that I can analyze.

To start with I started capturing the following data

Expense date, Amount, Purpose, Type of Expense: Bills, Shopping, Other

 

After sometime I realized that I need to identify payment mode also. So I added this field also to the form.

 

2. Initial Analysis

 

After couple of months, I had enough data to make some reports. I was able to find

- Total Expenses per month

- Expenses distribution in each category

This analysis gave me an idea of getting a whole picture of my data.

 

3. Benchmarking

 

After collecting this data for two more months, I was able to find average expenses. By doing a further analysis I was able to distinguish what factors caused additional expenses (above average) in some months.

 

This average gave me a benchmark value I should watch for during each month. I decided to keep my budget within 10% of my average expenses (above or below). This became my benchmark.

 

Benchmarking is a crucial step in the whole process. One should be able to compare the numbers against some similar experiences either within or outside organizations. To make it possible to compare numbers data collected may have to be normalized appropriately.

 

4. Decision Making and process improvement

 

Once I had the benchmark, I started using this benchmark to make decisions each month. Monitoring my expenses against my benchmark helped me a lot. When I had to make some unexpected expenses, I found that still I was within my goal and didn't panic. I had my numbers ahead of me and I felt in control.

 

5. Follow up and continuous improvement

 

I also found that I had introduce further categories to my Shopping Category: to Groceries, Gifts, Shopping. After introducing this change, it helped me gain further insight into how much essential expenses exist compared to my overall spending.

 

In this manner overall, I had to spend an year in data collection, analysis and benchmarking before realizing full benefits. I am able to gradually compare my expenses against detailed budget.

Once I had made some improvements I was able to achieve my goals in keeping expenses under control without worrying a lot. My decision making is more data driven. I have not given up once I made this improvement and continue to monitor this and improve.

 

Summary:

 

Any metrics based management system evolves over a period of time. Without going through various phases similar to the above, one should not jump to conclusions based on initial numbers which can lead to wrong decision making.

Stage 1: Data Collection: Knowing what data needs to be captured and setting up the procedures for the same. This can be more challenging if it is to be enforced on a group or organization
Stage 2: Initial Analysis:  What reports can be generated? Is data correct? Is data being collected sufficient? Do the numbers make sense? Don't jump to conclusions based on initial analysis in your excitement
Stage 3: Benchmarking: It is time to set goals by benchmarking the data with similar performances.
Stage 4: Decision Making and Process Improvement: Take decisions based on data collected to alter your processes and also look at improvements in data being collected and ensuring quality of data. Quality of Data is a major challenge. Errors in data can lead to disasters.
Stage 5: Follow up and continuous improvement: Follow up on the decisions taken for process improvement and measure effectiveness of the decisions after new numbers are available. Do this repetitively.

This makes Metrics based Management successful.