Measure What Matters
Service and manufacturing businesses generate profit from the conversion of hours worked (people or machine hours) to hours charged to customers. Effectiveness is the measure of hours traceable into customer invoices, as a percentage of the total number of hours worked or available. What comes as a shock to business owners is how low this % is in their business, typically in the range 54% to 62%. They are shocked because busyness is mistaken for effectiveness, in fact busyness hides low levels of effectiveness.
As a result of completing this Module you will
- Segment your products/services/customers according to their relative contribution to profit.
- Determine an appropriate course of action to take to increase the contribution of those products/services/customers that are under-contributing.
- If necessary (it usually is) introduce higher standards of financial reporting and accountability into the management process.
- Set targets for key profit drivers of the business and begin to measure performance relative to these targets weekly.
- Determine if the existing level of profitability is sufficient to achieve the plans you have for the business and your lifestyle aspirations.
- Prepare a financial budget for the next 12 months.