Measure Inputs, Not Just Results

01-Sep-2009 Financial reports are useful and necessary, but they only tell part of a story. Number-crunching accountants and analysts love financial metrics because they measure results clearly. But as a manager, it's your job to influence the inputs that drive those results.

Don't wait for the end of month financial reports. Measure things that contribute to revenue, such as customer retention, product quality, and referral rates to ensure you get the right financial results in the right way.

Keep your people focused on the inputs with the highest correlation to your financial goals. If you keep tabs on these contributing factors, you'll know when something's gone wrong before it shows up in your results. You may also be able to take timely corrective action and 'turnaround' a trend before it adversely affects the bottom line.

Adapted from "The Fallacy of Financial Metrics" by Anthony Tjan.

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