The Ultimate Tool for Business Analytics

The process of laying out the right combination of meaningful numbers or business metrics is part art and part science. It requires an understanding of the business, knowledge of the application(s) which contain the numbers, a mastery of various number crunching and presentation mechanisms, and the acumen for creating something that people will not only use without impunity, but take action from.

I am tempted to say, that the world of reporting, analytics, and business metrics is unlike any other, because the view of the final product is as varied as the pattern of a snowflake.

Let’s take the simple word ‘chair’. For some this conjures up a wooden four legged stool, for others, it could be a recliner, a rocking chair, or even bar stool; and the chair could be constructed of metal, mahogany, maple – or even plastic.

Now, let’s take the word ‘cost’. At first glance, you might be tempted to say – “well how many ways can you look at the word ‘cost’? Cost is cost”. Cost of what? Is it manufactured? To you include the cost of labor? You haven’t paid somebody for two weeks, so your payroll costs are not up to date – what is the cost of the hours? How to you determine that? If it is an inventory item, do you include freight? Landed costs? If it is a project cost, do you include overhead? How do you calculate that? Should you include administrative expenses? For what time period? How do you determine what part of overtime hours are apportioned to a job from an employee who worked on several jobs during the time period? How do you allocate my marketing expenses if you have cross sell strategies?

And you haven’t really gotten started. Not only are you trying to understand what should be included in the ‘cost’ then we have to figure out how we are keeping track of the ‘cost’. Are you going to take a bill and split it into 60 cost centers? Are you going to allocate costs every month – and how are you going to do that? How do you keep track of a specific non-inventory item, but your accounting package doesn’t do it? How do you take a simple chart of accounts and make it work for management reporting which may need to ‘cross-thread’ multiple accounts to get the answer? Will classifying the account do the trick? What happens when you change gears, and the existing class structure doesn’t work?

And then after you have figured out how to store the data to get it out, you have to create a mechanism that makes it easy to look at the ‘cost’, without needing a rocket sciences degree to gather the information and present it.

So how do you do all of this? Isn’t there a simple way to do all of this?

Answer: There isn’t a simple way. Oh sure, there are age old metrics that are rather easy to generate, such as sales vs. previous period sales, or a Profit and Loss comparison, Cash Flow Activity. However there is one problem – while these types of reports tell you the trend or health of your operation, they don’t tell you HOW the numbers got there, and they don’t tell you WHAT to do in future to change them.

Here is another way to put this: It is one thing if you see that sales are down from one month to the next. It is entirely a different venue when you see that the daily % of closed opportunities is down, or that the number of requests is down. Each one of these two metrics would get you closer to knowing which action to take. How about the number of calls made, or the quality of leads who have called; wouldn’t that type of metric get you closer to taking action?

One of my favorite client questions from 30 years ago, is something that I still keep on my wall: ‘Our financial statement said we made more money than last year? How come my bank account isn’t bigger?’

I remember explaining a few things to him, and even dusting off a cash activity report, but my client still had glazed eyes at the end of our discussion – and for the following few weeks. I had to come up with creative ways of SHOWING him, not just explaining to him. The proof was in what he saw, not what I said.

If I had some of the tools available today, I would have an easier time showing my client how inventory had grown, or that the inventory turnover rate had increased, or that receivables had increased, or that the number of days to pay had increased, or that we paid off more debt than expected, or that payables had decreased, or that we had increased payroll, or that sales or production per employee had increased, etc. etc.

It is one thing to create a report that somebody already wants. Simply ask for a picture, discuss the sources of the data in each column, and then find a way to produce that for the client.

But what do you do when the client is trying to find answers, and asks you a question about why their numbers appear the way they do. Do you have a quiver large enough to contain the types of arrows to draw down to the bull’s eye?

In my experience, the fast food mentality has perpetrated the notion, that there is a tool, or software application that will ‘dissect at will’ and can be used by a 4 year old. While this notion keeps me up at night, we are no closer to this ideal than sewing buttons on the moon.

So what’s the answer? A brain that thinks and can utilize the right tool for the correct situation. We haven’t found an application to replace the experienced brain quite yet.

We still need the ‘art’ to go with the ‘science’.